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Death of Korea's 'apartment king' leaves 100s in property purgatory

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Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#21

Post by [deleted] »

hn_user2 wrote: post #7
Eisenstein wrote: post #2

Can someone explain how this 'Jeonse' system works? The article is vague -- it states that a large deposit is required equal to around the price of the entire property, but why? Do they still have to pay rent? Why won't they get their deposit back if the state takes ownership? Shouldn't huge deposits be in escrow? None of this makes any sense to me.

I can give a little context just from my experience renting an apartment there. The large Jeonse where it is the price of the property is not necessarily required. Usually it is still usually rather large, and the higher the jeonse the less the rent is. So you are correct that a jeonse the cost of the house itself would usually mean $0 rent, whereas a more "normal" 1 years worth of rent jeonse would yield you a "norm…

[deleted]

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#22

Post by JCharante »

xyzzyz wrote: post #16
jimscard wrote: post #11

Earlier quoted context omitted.

The article states that they get 2 years of free rent. In exchange, the property owner gets the use of the deposit money. From what I can tell, the scheme depends on property values going up, so that when one tenant leaves, the owner can get another tenant to put down a larger deposit, part of which they use to pay back the first tenant etc.

It does not. The landlord can just invest the deposit, and then return the principal to the tenant when he leaves, keeping the interest.

At that point how is it better than the tenant investing the jeonse money and using the returns from the investment to pay rent?

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#23

Post by scaramanga »

hn_user2 wrote: post #7
Eisenstein wrote: post #2

Can someone explain how this 'Jeonse' system works? The article is vague -- it states that a large deposit is required equal to around the price of the entire property, but why? Do they still have to pay rent? Why won't they get their deposit back if the state takes ownership? Shouldn't huge deposits be in escrow? None of this makes any sense to me.

I can give a little context just from my experience renting an apartment there. The large Jeonse where it is the price of the property is not necessarily required. Usually it is still usually rather large, and the higher the jeonse the less the rent is. So you are correct that a jeonse the cost of the house itself would usually mean $0 rent, whereas a more "normal" 1 years worth of rent jeonse would yield you a "norm…

I think first para of this is not quite right.

If there is a monthly payment, it's weolse not jeonse. And the large deposit is bojeunggeum (key money). The larger it is, the lower the rent, typically on a standard scale (eg. every $10k more is $100/month less iirc).

But you won't get zero rent without switching over to jeonse. You're talking about upwards of quarter million dollars to start with that.

I've never signed a jeonse contract so not sure if the terms are very different to a 2 year weolse contract or whether the numeric parameters are just different :)

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#24

Post by lifthrasiir »

JCharante wrote: post #22
xyzzyz wrote: post #16

Earlier quoted context omitted.

It does not. The landlord can just invest the deposit, and then return the principal to the tenant when he leaves, keeping the interest.

At that point how is it better than the tenant investing the jeonse money and using the returns from the investment to pay rent?

The very existence of Jeonse affects monthly rents, making Jeonse a worthy candidate to consider to tenants.

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#25

Post by [deleted] »

hsbauauvhabzb wrote: post #13
jimscard wrote: post #11

Earlier quoted context omitted.

The article states that they get 2 years of free rent. In exchange, the property owner gets the use of the deposit money. From what I can tell, the scheme depends on property values going up, so that when one tenant leaves, the owner can get another tenant to put down a larger deposit, part of which they use to pay back the first tenant etc.

Isn’t this normally called a Ponzi scheme?

[deleted]

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#26

Post by IncRnd »

hsbauauvhabzb wrote: post #13
jimscard wrote: post #11

Earlier quoted context omitted.

The article states that they get 2 years of free rent. In exchange, the property owner gets the use of the deposit money. From what I can tell, the scheme depends on property values going up, so that when one tenant leaves, the owner can get another tenant to put down a larger deposit, part of which they use to pay back the first tenant etc.

Isn’t this normally called a Ponzi scheme?

No, this isn't close to a Ponzi scheme. A Ponzi scheme is fraud where profits are paid to earlier investors with funds from more recent investors.

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#27

Post by HDThoreaun »

frx wrote: post #3
Eisenstein wrote: post #2

Can someone explain how this 'Jeonse' system works? The article is vague -- it states that a large deposit is required equal to around the price of the entire property, but why? Do they still have to pay rent? Why won't they get their deposit back if the state takes ownership? Shouldn't huge deposits be in escrow? None of this makes any sense to me.

I had the same question. Why can't they simply buy the property if the deposit is the same price as the property itself?

They don’t want to is the idea. They want to live their for two years and then get their money back so they can move somewhere else without risk of things breaking or housing market going down.

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#28

Post by IncRnd »

frx wrote: post #3
Eisenstein wrote: post #2

Can someone explain how this 'Jeonse' system works? The article is vague -- it states that a large deposit is required equal to around the price of the entire property, but why? Do they still have to pay rent? Why won't they get their deposit back if the state takes ownership? Shouldn't huge deposits be in escrow? None of this makes any sense to me.

I had the same question. Why can't they simply buy the property if the deposit is the same price as the property itself?

The owner might not want to sell, or they might only want to rent. Also, the deposit is fully refunded at the end of the term in this type of rental. In a jeonse, the deposit is generally 50% to 80% of the value.

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#29

Post by lifthrasiir »

frx wrote: post #3
Eisenstein wrote: post #2

Can someone explain how this 'Jeonse' system works? The article is vague -- it states that a large deposit is required equal to around the price of the entire property, but why? Do they still have to pay rent? Why won't they get their deposit back if the state takes ownership? Shouldn't huge deposits be in escrow? None of this makes any sense to me.

I had the same question. Why can't they simply buy the property if the deposit is the same price as the property itself?

As a tenant you are freed from the property maintenance; instead you are at mercy of landlords for that aspect, but I think they should and actually do the maintenance in practice.

Many properties in SK are offered via a peculiar scheme, the Housing Subscription System 주택청약제도, which is a result of convoluted history. Basically you should have a dedicated saving account, and your eligibility will be scored by multiple factors including the deposit sum of that account and in particular the period of non-ownership. When you buy a house your non-ownership counter resets; Jeonse will keep it. So if you use Jeonse as long as possible, your chance of being eligible for this scheme will increase.

Re: Death of Korea's 'apartment king' leaves 100s in property purgatory

#30

Post by Eisenstein »

bane wrote: post #20
Eisenstein wrote: post #2

Can someone explain how this 'Jeonse' system works? The article is vague -- it states that a large deposit is required equal to around the price of the entire property, but why? Do they still have to pay rent? Why won't they get their deposit back if the state takes ownership? Shouldn't huge deposits be in escrow? None of this makes any sense to me.

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…

I don't understand how a mortgage is out of the question but they can come up with a lump sum of 80% of the property value. Where does this money come from? If they can come up with that and the market is great why not stay at YMCA and invest it for two years and get the entire sum to pay for the property? Your reasoning doesn't mesh with my way of thinking, which is obviously very different since I didn't grow up under that system, but it sounds to me like the tenants are getting screwed. Can you help me out?
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