As anxiety in the jeonsei and wolsei market deepened, the rate of exercising the right to request lease renewal for Seoul apartments fell. Renters, worried that prolonged instability in the lease market will push jeonsei and wolsei prices even higher, appear to be holding back on using the lease renewal request right. Analysts say that as existing rental supply has tightened under owner-occupancy-focused real estate policies and new construction has also become harder, concern that jeonsei and wolsei prices could rise further is strengthening a tendency to maintain existing contracts through tacit extensions or renegotiated renewals.
The right to request lease renewal allows a tenant to ask the landlord to renew the lease after it expires. If used, the rent increase rate is capped at 5%, enabling a renewal.
According to the actual transaction price disclosure system of the Ministry of Land, Infrastructure and Transport on the 20th, from the start of this year through the 17th, there were 66,712 jeonsei and wolsei contracts. Among them, the number of renewed jeonsei and wolsei contracts was 30,782, and the number that used the lease renewal request right was 13,223. The usage rate of the renewal right was 42.9%, down 5.5 percentage points from last year's 48.4%.
This trend has become more pronounced since February, when the end of the grace period for heavier capital gains tax on multiple-home owners was announced. The usage rate of the renewal right was 45.9% in January this year but fell to 43.4% in February. In March, the rate was 39.9%, failing to top 40%, and it remained 39.9% in April.
Experts say the decline in the use of the jeonsei and wolsei lease renewal request right stems from expectations that instability in the lease market will worsen. In early 2023, the number of tenants using the jeonsei and wolsei lease renewal request right also shrank rapidly, a period when the jeonsei scam caused jeonsei demand to plunge and jeonsei prices were expected to fall sharply. In that situation, tenants had no need to use the renewal request right and instead renewed at lower jeonsei prices through reduction contracts.
Unlike three years ago, recent conditions suggest strong demand to hold the lease renewal request right for later, out of concern that a shortage of jeonsei and wolsei supply could drive rents higher. Tenants are now opting for tacit extensions or renegotiated renewals that adjust deposits upward with landlords so they can use the renewal right later if jeonsei deposits or wolsei rise further. When the lease renewal request right is used, the rent increase rate is capped, whereas if it is not used, tenants can set jeonsei and wolsei prices through tacit extension or negotiation with the landlord.
Such contracts that raise deposits without using the lease renewal request right can be found not only in Gangnam but also in mid- to low-priced areas. In Deungchon-dong, Gangseo-gu, a renewal contract for a 93.81-square-meter exclusive area unit in Apartment A was signed on the 15th of this month without using the lease renewal request right, raising the jeonsei deposit from 400 million won to 500 million won. The same day in Songpa-dong, Songpa-gu, a 64.66-square-meter exclusive area unit in Apartment B also saw a renewal without using the renewal request right, increasing the jeonsei deposit from 750 million won to 900 million won.
With policies continuing to encourage multiple-home owners to list properties and expectations that supply shortages will persist, the outlook that jeonsei and wolsei strains could drag on is gaining ground. As of last month, the average jeonsei price for Seoul apartments was 680 million won, nearing 700 million won.
In particular, for Seoul apartments, as regulations tighten on non-owner-occupied single-home owners as well as multiple-home owners, the market is expected to be reshaped around owner-occupancy, and instability in the lease market is forecast to intensify. The lack of new supply also bolsters expectations that jeonsei and wolsei prices themselves could rise further.
Nam Hyeok-woo of the Woori Bank Real Estate Research Institute said, "Tacit renewals or renegotiated renewals are not considered the use of the lease renewal request right," adding, "With the jeonsei and wolsei market unstable, there are no listings and jeonsei prices are expected to rise, so some are not using the right in anticipation that moving later itself will become difficult. Also, from a landlord's perspective, it has recently become harder to acquire additional dwellings with deposits, so tacit extensions appear to be occurring as well." Seo Jin-hyung, a professor in the Department of Real Estate Law and Administration at Kwangwoon University, also said, "Recently, jeonsei and wolsei prices have risen so much that more people are seeking tacit extensions."