Jeonse, is it still unique in Korea?

Jeonse, a type of a lease or deposit common in the South Korean real estate market which is one of the rare system in the world.

Jeonse is a contract in which a tenant leaves a deposit to a landlord who owns an apartment or other property and borrows the property for a certain period of time. Unlike monthly rent, when you return a property, you get the full amount of money you deposit.

Until now, the jeonse has been known as Korea’s unique system.

There is a record in Goryeo history that the predecessor of Jeonse was already carried out during the Goryeo Dynasty. Considering that the party’s creditors were made to secure collateral in preparation for default, the jeonse system has maintained a close relationship with the financial sector from the start. The origin of modern jeonse is the late Joseon Dynasty, when a hall for family appeared. Subsequently, Article 303(1) of the Civil Code enacted in 1958 institutionalized the right of “jeonse” in Korea.

Currently, the Jeonse system can be found in Korea, Spain, France, the United States, Argentina and Bolivia, but it is only three countries, Korea, Bolivia, and India, that the system is practically in place.

In India, the jeonse is unique in very few areas. It pays a large sum of money for two to three years, and when the contract expires, the lessor pays only the principal without interest. If the lessor fails to return the deposit upon contract expiration, the house is transferred to the lessor.

In case of Bolivia. Bolivian jeonse is almost the same as the Korean jeonse structure. In Bolivia it is difficult and expensive for real estate owners to borrow large amounts of money from banks which is one of the reason why jeonse is popular. Another reason is that the monthly rent is low and it is less attractive than jeonse.

In fact, if you look at the current government’s real estate regulation policy, the government’s roadmap shows its willingness to create a real estate market that can ultimately operate on a monthly rent system rather than a jeonse. Implicitly, some people already know that the jeonse system itself, which exists only in few countries including Korea, is a stepping stone to gap investment.

Our jeonse system has a fragile structure when it comes to ‘Risk Hedge’. So the fact that it exists in our country has become increasingly interested in the property market.