2023-06-09 23:30:00
Kwang-soo Lee, CEO of ‘Kwang-soo’s Bokdeokbang’,’s ‘Theory of Effectiveness’
Lee Kwang-soo, CEO of ‘Gwangsoo’s Bokdeokbang’, is having an interview with Weekly Trends at Medici Media Publishing House in Jung-gu, Seoul on June 6. / Reporter Seongil Seo
[주간경향] The evaluation of jeonse differs depending on the individual’s position and the perspective of leasing. There is a difference in the strength of the claim, but in general, the position that ‘the jeonse is still valid in the Korean market’ and the position that ‘the jeonse must disappear’ are at odds.
Arguments at the extremes are based on distinctly different diagnoses about the premortal future, but share similar stories in reaching their respective conclusions. The same is true of the Korean jeonse being used as a means of asset formation by lessors or the government’s evaluation of market intervention. Therefore, if you can look at the commonalities of these claims and even cover the differences, you can develop a more accurate view of the current jeonse market.
It is for this reason that Weekly Kyunghyang decided to interview the people who insisted on ‘the theory of the effectiveness of the jeonse’ and ‘the theory of the extinction of the jeonse’ respectively. On June 6th, I met and heard Lee Kwang-soo, CEO of ‘Gwangsoo’s Bokdeokbang’ at a publishing house in Jung-gu, Seoul, about the explanation of ‘theory of jeonsei effect’, which is getting more people’s consent. Representative Lee, who has been active as the longest-serving construction industry analyst in Korea, has consistently presented prospects for the real estate market through numerous books, so he was judged to be the right person to explain this.
When asked, ‘What do you think the charter system will be like? Jeonse is a ‘phenomenon’, not a ‘system’,” he said. The reason why the jeonse market could not disappear due to the government’s artificial intervention became clearer with the one word he said, ‘phenomena’.
Lee Kwang-soo, CEO of ‘Gwangsoo’s Bokdeokbang’, is having an interview with Weekly Trends at Medici Media Publishing House in Jung-gu, Seoul on June 6. / Reporter Seongil Seo
-What kind of situational context is the reason why jeonse has settled down stably in Korea?
“With rapid urbanization, the demand and supply for housing has increased rapidly. The problem was that the people who flocked to Seoul did not have enough money to buy housing provided by the government and construction companies. Finance was needed to connect them. In a similar situation, in the United States, housing finance in the form of ‘mortgage’ has developed with banks at the center. Korea didn’t. Even if a bank tried to lend money, it was not possible to determine an individual’s credit status at the time. There was a limit to accurately grasping income in situations such as receiving a monthly salary in an envelope. As a result, ‘private mortgages’ attracted attention in the market. That is the ‘charter’ that is characterized by the difference between the holder and the user. Someone bought a house, and someone helped and chose to live instead.”
-Isn’t the transaction between individuals unstable? What is the driving force that has lasted so long?
“This is because the rental price has continued to rise. Rather than the concept of lending and borrowing money, the perception of ‘leaving money’ was stronger. However, the landlord and the lessee had different ideas about this money. In a situation where demand is increasing and the rental price continues to rise, the lessor is ‘money that does not need to be returned’ and the lessee is ‘money that can be received unconditionally’. No one thought prices could drop. Perhaps, if the jeonse price had not fallen extensively, this time, it would have simply gone over to the case of an individual being scammed.”
-Are you saying that the jeonse was a favorable situation for both the landlord and the lessee?
“The reason why Jeonse survived in Korea is simple. This is because landlords prefer renting. Then why would you prefer it? This can be answered by looking at what landlords are trying to get through charter. How many landlords are likely to aim to improve cash flow when buying a house for rental purposes? Most of them are looking for capital gains through rising house prices. Jeonse is a means to help you aim for this capital gain. It means that he calculated that buying several houses with tenant money and waiting for the house price to rise can make a bigger profit than receiving money every month as rent.”
– What are the benefits to tenants? The perception that deposits are economically inefficient, apart from the risk of repayment, is spreading.
“Korean society speaks as if it has recently learned that monthly rent can be a better option for interesting game tenants. But in reality it is not. In the past, when the population increased due to urban concentration, ‘fraud’ was a common problem. There were many occasions when he moved to Seoul from the countryside and lost his hard earned money all at once. At this time, the charter functioned as a kind of safety valve. Simply put, once you put the money into the charter fund, you couldn’t be scammed because you had no money in your hand. You must have heard a lot from your parents’ generation, ‘I bought a house because of the jeonse’ or ‘I saved money by the jeonse’. This is interpreted as if the Jeonse brought money, but in reality it does not mean that. The interpretation of ‘I kept the money without losing it through charter’ is more accurate. If you think about it, in the past, bank deposit interest rates were incomparably higher than they are today. Still, he preferred to get a charter. It was a reasonable choice that could solve the instability of the banking system, the risk of fraud, and the housing problem at the same time.”
– Can you say that the global contract is still valid? The banking function has developed, and concerns about deposits for jeonse are rather pouring out.
“This should be explained in terms of a change in the perspective of looking at the jeonse, rather than a matter of whether or not the jeonse is valid. Simply put, the charter is as it is, but the contracting party looking at it is changing their perception that ‘this is dangerous’. What has changed most rapidly is the thinking of the tenants. Regarding the charter deposit, the mindset is changing from ‘money that can be received unconditionally’ to ‘is it really possible to receive money?’ It is faster than the speed at which the landlord changes his mind, saying, ‘I must return the deposit.’ This is a change that occurred in the charter operation process.”
Minister of Land, Infrastructure and Transport Won Hee-ryong gives a presentation at the ‘Joint Briefing on Support for Victims of Charter Fraud’ held at the Seoul Government Complex on April 27. / Reporter Junheon Lee
-In fact, looking at the claim of ‘the theory of annihilation of the jeonse’, it is difficult to distinguish whether ‘the jeonse itself is a problem’ or ‘the system that supports it’ is a problem. As Minister of Land, Infrastructure and Transport Won Hee-ryong made a statement to the effect that ‘the charter system has reached its end of life’, only the discussion expanded to the theory of the extinction of the charter. Which side do you think is closer to the current problem?
“The latter. For this reason, the government needs to think about ways to complement the charter system so that it works well. It is difficult to take a problem-solving approach. Economic phenomena cannot be approached with the justification of ‘good or bad’. This is a story that can only be used in the political world. The real economy is different. There is a study that the domestic jeonse deposit is over 1,000 trillion won. If the jeonse is eliminated immediately, this 1,000 trillion won will have to be repaid. Where and how will you get that money? The charter collapses when people’s perceptions change, not the government’s artificial intervention. This is not the time to say ‘get rid of the jeonse’. We need to focus on preparing measures to minimize side effects.”
– Fundamentally, can the government artificially abolish the charter system?
“Calling the charter a ‘system’ implies that ‘the government made it as a policy’. However, as explained above, the process of making a charter and establishing a place was far from artificial. Rather, it is more like a natural occurrence in a market that was concerned about the absence of an institution. This is the reason why the charter is explained as a phenomenon, not an institution. Minister Won’s remarks are neither more nor less than political rhetoric. How can we eliminate a phenomenon that is not an institution? If I have to interpret it, I think there is a hidden word in Minister Won’s remarks about ‘getting rid of the charter’. I think what I really wanted to say was ‘I will get rid of the charter (Lease Act 3)’.”
-It is true that many point out that the ‘three laws on lease’ (contract renewal application right, monthly rent limit system, monthly rent reporting system) are the culprits of the jeonse situation.
“It is a criticism that comes because it does not consider the context of the situation. The 3rd Lease Act came out at a time of low interest rates and rising real estate prices. During this period, 50-60% of all contracts used the global contract renewal right of the 3rd Lease Act. The rest is a new contract, but the problem now is the logic that when signing this new contract, it was raised all at once, considering that the deposit for the charter could not be raised for 4 years. If so, what would it have been like without the 3rd Lease Act? If the turnover crisis was worse than now, it would have been worse, I don’t think it would have been less. At that time, 50-60% of people who used the right to renew the contract to tie up the jeonse price benefit from the 3rd Lease Act when the jeonse price rises, and now when the jeonse price declines, they can enter the jeonse again at a cheaper price. There are definitely people who have benefited, but it is said that it is an evil law that everyone has been harmed without considering it. Above all, it is difficult to understand the logic that the rental price can be prevented from rising without the 3rd Lease Act. It is similar to lowering the final rent and lowering the monthly rent. You can freely raise the price, but do you think the landlord will lower the price? At least, I have never seen such a case in the Korean real estate market.”
Criticism of the Special Act on Jeonse in Cans and Demand for Resolution Participants at a press conference are shouting slogans, urging the expansion of the scope of victim recognition and measures to recover deposits. / Reporter Cho Tae-hyung
-One of the phenomena that appeared after the requirements for joining the Jeonse Deposit Return Guarantee of the Housing and Urban Guarantee Corporation (HUG) became more stringent is the situation where the lessor is unable to return the tenant’s deposit. This is a problem that occurred when landlords planned to bring in the next tenant to repay the deposit, but failed to receive the deposit as much as they received from the existing tenant due to the requirements for joining the hug guarantee. Then, the government loosened the DSR (total debt principal and interest repayment ratio) regulation for the lessor and is considering additional loans.
“In the end, ‘if I sell my house, the real estate price will drop, so I’d rather lend more money. borrow it and pay it back.” If you do not have enough income to repay the deposit, how can you say that you will lend more money even if you take into account the risk of default? Korea’s household debt is over 100% of its gross domestic product (GDP). Even if the policy goal is to bail out bona fide tenants, the order is to ask the landlord to ‘sell the house’ before lending is eased. When a company misbehaves and injects additional public funds, the first thing that comes out is to come up with self-rescue measures. But why is the real estate market an exception? Unraveling lending restrictions could have serious aftereffects in terms of international finance. Overseas credit rating agencies continue to point out Korea’s household loans. Financial authorities should not make a decision to burn all thatch to solve the jeonse problem.”
– Even if the landlord wants to sell the house, there may be no one willing to buy it.
“I know why. Because they don’t sell houses cheaply. It is the attitude of ‘I will never lose money’. He went to the bank to find a deposit, and when I said, ‘I don’t have any money, I’ve spent all your money’, I said, ‘Oh, that’s right. Then I’ll wait’ one. Wouldn’t it be better to ask for the return even if you sell the assets? That’s the financial system. That way, the person who entrusts the money can be trusted, and the person who spends the money that is entrusted with it becomes more prudent. It is a situation where the Bertini government does not return the money and lends the money. When the government says house prices will fall, its actions take the attitude that it cannot see real estate prices falling.”
– Why are you trying to keep real estate prices going this far?
“Our society has an excessive fear of falling house prices. Even homeless people worry about falling house prices. When house prices fall, individuals, banks, companies, and countries fail. It just became brainwashed. There are no hard landings in real estate. When house prices fall, someone will inevitably buy them. Even during the IMF, when real estate prices fell, they were sold. This is because the house has the use value of ‘residence’. Therefore, there is downward rigidity in real estate prices. They don’t know the essence of this, and even a slight drop in real estate creates a sense of fear, saying it’s a hard landing.”
Lee Kwang-soo, CEO of ‘Gwangsoo’s Bokdeokbang’, is having an interview with Weekly Trends at Medici Media Publishing House in Jung-gu, Seoul on June 6. / Reporter Seongil Seo
-If jeonse continues in the Korean rental car market, what supplementary measures should the government come up with in the future?
“We need to think about having a system that does not have any problems even if the jeonse price drops. In the rental car market, the top priority of politics is the protection of the housing vulnerable. Within this premise, the deposit for the jeonse must be kept. The most effective way is to increase public rental housing. Currently, public rental housing accounts for about 8% of the total. remarkably low. You can also think about the direction of increasing the rental of excellent companies. If the government really wants to get rid of jeonse and switch to monthly rent, it should have nurtured the corporate rental market for the purpose of operating profit. The burden of rent in the form of monthly rent can be sufficiently lowered by setting an upper limit. In addition, excessive rent rises can be controlled by separating the ownership and operation of corporate rental housing. In the market where operating profit is the goal, the purpose is to stably attract tenants, so housing instability can be expected to be resolved. As it is now, you can get out of the structure of quickly letting the existing tenant out and receiving a higher deposit from the next tenant. Jeonse is naturally reduced by the market’s choice, and it is not something the government can do with its system. It should be borne in mind that man-made interventions lead to failure.”
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