61–66 of 66 posts
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> morgage in SK is very very difficult to get - most people early in life not qualifying for one This is the same in the large majority of other wealthy countries. The difference is that in Korea the pressure for a newly married couple to move straight into a bought or at least jeonse apartment is much bigger. Paying monthly rent is seen as a sin. This completely unrealistic expectation isn't nearly as strong in e.g.…
-- Korea is still an emerging country - 40 years ago we were basically "3rd world" - still a lot of growth to go! --
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> 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 afte…
Looking at demographics: https://en.wikipedia.org/wiki/Demographics_of_South_Korea in 1955 900.000 people were born in Korea. In 2022 about 250.000. The population in 2021 only decreased by 60.000 but this number will increase rapidly. Seoul might not change for a few years but a population decrease of 1% each year will not leave the property market unaffected.
2021 is an outlier with excess Covid deaths and also Covid restrictions (particularly strict in Korea) massively leading people to delay marriages which also affects birth rates (again, particularly in a conservative country like Korea). If you search population projections you'll see it will likely take decades before any significant impact is had.
The latest estimate is that the population will drop by roughly 2% over the next two decades. 2% over as many as two decades, during which many black swans can and probably will happen, is clearly very little.
But even that 2% in itself will have much less of an impact than one may expect. A large portion of the elderly population (I expect this to be the majority) lives in real estate that already sees virtually zero demand from the population below 60 years old. Younger people are not going to move into those places. For all the elderly living on the countryside, their passing will have no effect on real estate prices. For most living in cities it will only have an indirect effect at best; the undesirable housing they live in will eventually be demolished, freeing up land and thereby possibly driving down housing prices, but only if new housing is actually built on them.
Elderly poverty is unfortunately a massive societal problem in Korea. A common misconception is that Korea's high suicide rate is due to the high performancs pressure placed on youth but in reality that's only a tiny part of it with elderly suicide, often driven by poverty, is overwhelmingly the main cause.
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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 un…
- It's the general norm that people stay with their families well into adulthood -- often even after marriage and children (with "free" childcare from the grandparents). It's not as common for single adults to have their own property. [1]
- Given this reality of households, families often pool their money for large purchases. Since Jeonse is "guaranteed" returned after a lease, it's low/no risk to individual family members, who all get a place to live as part of the agreement. It also lets people of a variety of economic circumstances all participate in getting high quality housing.
- The average wage in South Korea is - Jeonse doesn't mean "lump sum for no rent", it's a sliding scale and many properties use Jeonse + some minimal rent. At the other end of the scale the typical Western style "deposit + full rent" is called a Wolse.
- Crashing at a flop house/share house/whatever does happen, there's an entire industry of ultra-minimal cheap apartments, but both social stigmas and once a person gets married and has kids, you need more space quickly.
It's not a perfect system, but during a fast growing economy coupled with a government strapped for cash, it allowed tens of millions of Koreans to move into safe and modern housing. Unfortunately, it's extremely fragile in any other conditions and has lots of downsides in nearly any other market condition. As the Korean state matures and growth slows, I expect it to slowly go away to be honest.
1 - With the exception of Officetels, which are tiny efficiencies meant for working professionals.
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you mean simulated or pretend profits
The word profit refers to the profit of the earlier investors.
Here'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…