- i did jeonse - and was jeonse landlord - used savings for 2 years of key money - paid no rent for 2 years - saved like mad for them 2 years - moved out after 2 years - took my savings + jeonse return - bought a house - got a mortgage on a second place using first place + jeonse deposit from my tenet - now own 2 places that appreciate faster than any other investment could have made - last year - sell them both - pay back jeonse tenent - bought 1 nice house with no mortgage - couple things to clear up in this tread - jeonse is not usually 80% - I see the wiki article says that but never seen someone paying 80% of the property value - usually 40/50% - why not morgage? morgage in SK is very very difficult to get - most people early in life not qualifying for one - so this system works - one other things not mentioned - many employers will offer you jeonse loan after 1 year of employment --
Death of Korea's 'apartment king' leaves 100s in property purgatory
41–50 of 66 posts
Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#42Earlier quoted context omitted.
The Jeonse system, sometimes called "key money" is one of the various systems in South Korea that people use to get access to incredibly expensive housing in lieu of purchasing it. In a basic sense it's a long-term loan to the property owner, usually in the amount of 70-80% of the total property value, that you get back at the end of your lease. In exchange the following things happen: - The property owner get lots o…
It works because unlike renting, you aren't simply burning your money in a fire every month, you get it back and can add any savings made during the lease to that value to either find another place to Jeonse, or buy a property if you have enough. I don’t get the economics here. It doesn’t matter who manages the money (apart from the fact that your savings go to someone who is barely able to assess risks), the landlor…
> Why transfer a principal part as a loan?
I suppose it doubles as a security deposit in case the tenant mistreats the property. I've known several people who acted as landlords- one rented out an apartment above their storefront, two others rented out their homes when they had to move for work but couldn't find a buyer (this was around the 2008 crash).
All three cases ended with the tenants doing significant damage to the property that wasn't covered by the standard security deposit. I think one case was a secret junkie who went off the deep end, the others were college kids iirc.
I don't think I'd want to be a renter without my key money held in escrow or at the very least a lean held against the property, but that does break the system a bit.
Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#43Earlier quoted context omitted.
The Jeonse system, sometimes called "key money" is one of the various systems in South Korea that people use to get access to incredibly expensive housing in lieu of purchasing it. In a basic sense it's a long-term loan to the property owner, usually in the amount of 70-80% of the total property value, that you get back at the end of your lease. In exchange the following things happen: - The property owner get lots o…
It works because unlike renting, you aren't simply burning your money in a fire every month, you get it back and can add any savings made during the lease to that value to either find another place to Jeonse, or buy a property if you have enough. I don’t get the economics here. It doesn’t matter who manages the money (apart from the fact that your savings go to someone who is barely able to assess risks), the landlor…
You do get a collateral with Jeonse. You will have claim to the property under the insolvency law.
Of course there might be competing claims that may take precedence. Usually mortgage or prior loans. So you are supposed to do research on the property before signing a jeonse. There are also insurances for Jeonse as well.
Having said this, I still agree that Jeonse is crazy. I think South Korea is due for a huge painful recession when the housing, construction and capital market collapses due to Jeonse domino and the Legoland fiasco.
Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#44Not sure I understand - don't these tenants have first position liens on the properties they live in? So failure to repay their deposits will result in them owning the property outright?
Yea they have claims to it but they may not have the first position. The property owner may have got a mortgage, or have used it for a collateral in another loan.
You are supposed to look at the existing interests in the property before signing a Jeonse but not everyone does that. Besides there are fraud schemes that involves property owner going into debt just before you sign which is pretty bonkers.
Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#45Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#46- i did jeonse - and was jeonse landlord - used savings for 2 years of key money - paid no rent for 2 years - saved like mad for them 2 years - moved out after 2 years - took my savings + jeonse return - bought a house - got a mortgage on a second place using first place + jeonse deposit from my tenet - now own 2 places that appreciate faster than any other investment could have made - last year - sell them both - pa…
[deleted]
Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#47Earlier quoted context omitted.
I had the same question. Why can't they simply buy the property if the deposit is the same price as the property itself?
https://anthonyleezhang.github.io/pdfs/jeonse.pdf
What answer are you suggesting? Is it that banks will finance a jeonse deposit, but they won't finance a purchase?
> Chonsei deposits are often very large, at around 70% of house prices
> Chonsei arrangements are popular partly due to the fact that the residential mortgage market in Korea is unusually underdeveloped: mortgages have very short terms, and loan-to-value ratios generally below 40%.
> It is common for tenants to fund Chonsei deposits by borrowing from banks
Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#48Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#49- i did jeonse - and was jeonse landlord - used savings for 2 years of key money - paid no rent for 2 years - saved like mad for them 2 years - moved out after 2 years - took my savings + jeonse return - bought a house - got a mortgage on a second place using first place + jeonse deposit from my tenet - now own 2 places that appreciate faster than any other investment could have made - last year - sell them both - pa…
It's great it worked for you to get you your "1 nice house with no mortgage", but as the article states this only works if property prices don't fall. I think your comment completely disregards the really bad flip side of this scheme that the article is talking about and you are cherry-picking your personal anecdote to... flex...?
Re: Death of Korea's 'apartment king' leaves 100s in property purgatory
#50Here's an example to explain jeonse. An apartment might have a purchase price of $500k and a jeonse "rental" price of $300k. If you rent under jeonse, you pay this $300k deposit to move into the apartment and you get it back fully when the lease expires. You could also pay monthly rent for $2k a month if you choose to rent on a monthly basis with low deposit. Tenants like to rent under jeonse because it feels like fr…
> The opposite happens when real estate prices go down as they have been for the past 6-12 months.
I'm really nitpicking here but overall they've barely gone down over that period. Certain types of real estate may have gone down by 0.1-1% but that's negligible. The Korean news likes to bring it as if real estate is crashing but that's because even prices staying equal was unthinkable in the minds of many Koreans after decades of continuous increases.