Have you heard about ‘key money’? It is actually a big chunk of cash that you entrust to the landlord as a security deposit when you rent a property in Korea. The value of the key money depends on the type of rental agreement you have with the owner. The two most common types of rental systems are Jeonse (전세) and Wolse (월세).
It literally means ‘money in full amount’. In this rental system you pay 50-80% of the property market value. Sounds crazy right? But many Koreans prefer this rental system. Okay, this is how it goes. You pay a large amount of money, as I have mentioned, almost up to 80% of the market value of the house as a deposit. The contract is usually for two years. You can occupy the house without paying any monthly rental fee. And when the contract ends, the landlord gives you back your key money in full amount. So it’s like you are just occupying the house for free.
So how does the landlord earn from this rental system? The landlord actually invests the key money by depositing it into a high interest time deposit savings account or any other kind of investments. In case when the landlord can’t pay you back after the term ends, you can live in the house until the landlord gives you back the key money. Sounds pretty good huh? But many people find it hard to get that huge amount so they borrow money from financial institutions just to reach the required amount for the key money.
“Wol” is the Korean term for “month”. So it basically means “monthly payment”. You give none or a certain amount (but much lesser than jeonse) as deposit and pay monthly rental fees. In most cases, 5 million won ($4,500) is the minimum key deposit but the bigger the key money, the lower the monthly rental fee. With the declining interest rates nowadays, more and more homeowners prefer this type of system.
A week ago I accompanied Andy to a real estate agency near our property location to inquire about its current market value. It is a residential property (dagagu jutaek /villa) in jeonse rental system. We’re thinking about whether we should change it to wolse system or just sell it to purchase another one located in a better area. Anyway, I took a photo of the house rental price list posted on the glass wall of the office just to give you an idea how much the rental cost in Seoul is. By the way, the houses rented with this price range are row houses or villa and not apartments. Apartment rental costs 2-3 times higher depending on the area.
Prices of the available house units for rent in a small neighborhood in Dongdaemun district
Jeonse: Key money
house with 3 rooms – 120 million won ($ 107,865 / PHP 4,707,728)
- house with 3 rooms – 150 million won ($ 134,831 / PHP 5,884,660)
- house with2 rooms - 50 million won ($ 45,000 / PHP 1,961,553)
- house with 1 room - 55 million won ($ 49,438 / PHP 2,157,708)
- house with 1 room - 35 million won $ 31,460 / PHP 1,373,087)
Wolse: Monthly payment with deposit
- house with 2 rooms: 10 million won deposit & 350, 000 won monthly rental
($8,988 / PHP 392,310 deposit & $314 / PHP 13,730 monthly rental)
- house with 2 rooms (2nd or 3rd floor) : 20 million won deposit & 450,000 won monthly rental
($17,977 / PHP 784,621 deposit & $404 / PHP 17,653 monthly rental)
- house with 2 rooms ( 1st floor): 40 million won deposit & 100,000 won monthly rental
($35,955 / PHP 1,569,242 deposit & $90 / PHP 3,923 monthly rental)
- house with 1-2 rooms: 2-10 million won deposit & 200,000-400,000 won monthly rental
Many Koreans prefer renting a house over buying their own because of the jeonse system in which they can occupy the house and get back the money in full after two years. However, since interest rates are declining, landlords increase the jeonse rates to earn more from interest. And because of the increase of jeonse rates, more people can’t renew the contract and find another house with lower jeonse rate. Sometimes, it means moving to another city. Seoul is over-crowded and people are fighting for space. More and more people come to Seoul and finding an affordable place to live is becoming more difficult.
Fall season is fast approaching and it is by the way, the moving season in Korea. Many families move during that time, before the cold winter comes. What do you think about the Korean rental system? If you rent a house in Korea, would you go for jeonse or wolse?