A public-backed private rental housing project in Seoul's Seongdong district drew 5,227 applicants for just 40 units, a competition ratio of more than 130 to 1.
Rents at 70-80% of Market Draw 130-to-1 Odds
According to the Korea Real Estate Board's subscription platform on the 24th, the "Seongdong Space" public-backed private rental project in Majang-dong, Seongdong district, drew 5,227 applicants for 40 units during its application period on the 12th through the 14th. The average competition ratio was 130.7 to 1, with the highest ratio for a single unit type reaching 243 to 1.
Public-backed private rental housing is built by private developers with government support. Annual rent increases are capped at 5%, and tenants can stay for up to 10 years. The interest in this type of housing is attributed to a recent combination of scarce jeonse and monthly-rent listings and rising rents.
Seongdong Space is a low-rise multi-unit building of 40 units in Majang-dong, made up mainly of small and mid-sized homes ranging from 38 to 58 square meters of exclusive floor area. It is the first such rental offering in Seoul in about a year, since September of last year.
Aimed at non-homeowners, 10 units were set aside for a special supply to newlyweds and 30 for general supply. The general supply was run as a lottery with no income or asset requirements and no need for a housing savings account. This low barrier is seen as having fueled the strong turnout.
The rent burden is also lower than in the surrounding area. Deposits were set at 150 million won ($108,000) by unit type, with monthly rents ranging from 520,000 to 950,000 won, or about 70-80% of nearby market rates.
By comparison, a 56-square-meter unit in a 44-year-old low-rise building nearby is listed at a 50 million won deposit and 1.5 million won in monthly rent. Applying a 5% jeonse-to-monthly conversion rate, analysts say Seongdong Space's price advantage stands out. Converting the lease deposit on a 39-square-meter unit to a jeonse equivalent yields an estimated 250 million won or so.
Government to Expand Private Rental Supply
Meanwhile, the government is reported to be planning to expand the supply of public-backed private rental housing. A "plan for the rapid supply of housing" released on the 13th includes a new corporate-model offering that would allow long-term leases of 20 years or more, in addition to the existing 10-year leases.
To increase the supply of stable, affordable long-term private rentals, the plan calls for strengthening financing support for developers while partly easing rent regulations. To that end, the Korea Housing & Urban Guarantee Corporation (HUG) is said to be preparing a new long-term mortgage product backed by rental housing with deposits. Under the structure, HUG would provide a public guarantee for low-interest loans from commercial banks for up to 24 years, combining three to four years of construction with 20 or more years of rental operation.
For the 20-year long-term rentals, the initial rent would be set at about 95% of market rates, and rents could be adjusted up to 95% of market rates even when tenants change. The measure is seen as reflecting industry views that under the existing 10-year leases, the 5% cap on rent increases applies even when tenants change, making it hard for developers to secure profitability.
With scarce jeonse and monthly-rent listings and rising rents continuing, attention is turning to whether public-backed private rental housing can establish itself as a new option for tenants in Seoul.
