2016년 5월 24일 화요일

Must Know - Key Points for House Rental in Korea to Foreigners

Rental housing in Korea is divided into two major categories: Jeonse (lease on a deposit basis) and Wolse (lease on monthly rent basis). If a tenant doesn't understand house lease system in Korea, it may result in big loss. Thus, I would like to explain the key points of a note of caustion in Korean house lease system briefly.


Category
Area
(㎡)
Sales Price
Jeonse
유지,지난주 대비 상승,지난주 대비 상승,유지,유지,유지,지난주 대비 상승,지난주 대비 상승
Wolse
Key Money
Key money
Monthly Rent
(KRW m)
(KRW m)
(KRW m)
(KRW k)
 Seoul
56-65
200-1400
160-740
20-300
700-1000
80-85
260-1400
200-950
50-400
800-2000
 JS House
 Neighbors
56-65
210-440
170-370
20-100
700-800
80-85
280-550
170-470
50-100
800-1400
One room of JS House neighbors: 20-26 Key money KRW5m ~10m Monthly rent KRW450k~550k.
* It depends on region and square meters of house.



1. Jeonse  (lease on a deposit basis)
  • Useful for those whith cash on hand
  • Key money (full deposit) lease  (67%~75% of market price):
         - Pay 10% of the total key money amount when the contract is signed
         - Pay the balance when moving in
  • Key money to give back in full at the expiry date (when moving out)
  • Available for foreigner
  • Tenant (lessee) has a right to live for contract periods (generally 2 years) without additional monthly payment
        * Utilities and other costs (water, gas, electricity, cable, phone, internet, security,
           etc.) are applied for and paid by the tenant
        * In cases of  damage done to the property, it has to be fixed to the landlord's
           standard
  • Automatically extended if there is no expiration notice from landlord (tenant can declare supension of contract before 3 months regardless of expiry date)
  • Not compusory to register in Court Registry Office
  • No registration tas. No VAT
  • Risks related to returning key money
         - No payback of key money (Tenant may wait untill find another tenant who will
            pay the key money)
         - Legal action by other creditors (Tenant may wait until all the procedures such
           as court auction against the property is completed)
           -> If the tenant is not prior over the other creditors, he/she may result in a big
                loss.
           -> Please refer to the below 5. to protect tenant's rights and secure senior
                lien against the property for the key money amount given
         - Landlord may ask to increase the key money. If you agree, you should check
            the information and consider market price of the property.
            -> Check the other parties claim or lien (see the below 5. c))
            -> If the renewed total key money is high compared to market price, consider
                 the renewal of contract.
                 * Even though the highest increase ratio is 5% by law, landload can ask to
                    increase much more according to market price. If you don't accept, you
                    may find other house.
            -> Keep the old contract and new contract after stamping for certifying contract
                 date at the Dong office

     * The main reasons why Jeonse is popular 
        a. Landlord can own a house by his/her small amount of seed money
        b. Real estate price expects to increase
        c. Landlord can make a return by investing the deposit money
        d. Tenant can use the house at low cost


2. Wolse (lease on monthly rent basis)
  • Useful for those with less cash… (but still a sizeable amount)
  • Key money (deposit) of 10~20 months rent
         - Pay 10% of the total key money amount when the contract is signed
         - Pay the balance when moving in
  • Pay rent monthly
  • Key money to give back in full at the expiry date (when moving out)
  • Less payback risk of key money
  • Rent is more expensive than financial cost on deposit of Jeonse
  • Rent is negotiable with landlord
     * The main reasons why Wolse is increasingly popular 
        a. Landlord prefers a monthly rate comparing with expected financial gain from
            Jeonse due to low interest rate
        b. Not easy to find investment of blue chips with key money due to economic
            recession
        c. Big amount of key money is burdened to tenant.


3. Kalse (full payment up front without key money)
  • A kind of variation of Wolse
  • The rent is paid for the entire period of the lease before the tenant moves in
  • The lease period is usually for a minimum of 1 year and a maximum of 3 years
  • Clearly stipulate acceptable reasons for early termination as well notice and refund procedures in the lease agreement to avoid having to pay a penalty or losing the entire pre-payment
  • The usual notice period of 60 to 90 days.

4. Mixed with Jeonse and Wolse
  • Increasing trend on mix of Jeonse and Wolse, especially by retired baby boomers expecting rent income due to decreased interest income by low interest rate
  • Key money (deposit) of approximately 70 months rent
  • Key money to give back in full at the expiry date (when moving out)
  • Rent is based on the key money of Jeonse, i.e. 6%~10% of difference between key money of Jeonse and Wolse per annum.
        e.g. Jeonse key money in the market: KRW200,000,000
               Wolse key money: KRW80,000,000
               Rent (7%): Monthly KRW700,000 (120,000,000 x 7% / 12months)


5. How to protect tenant's rights against court auction

  1) Court Auction
  • Parties related to owner can file court auction according to proper rights such as court judgement or overdue of loan
  • Court notifies the commencement of auction process to all the related parties
  • Tenants should file their own rights to the court to receive dividend after final bidding
  • Priority against the other parties depends on contervaling date including stamp date on Jeonse, i.e. the contervailing date (see the below 3) ) must be earlier than other registration date in the Court Registry Office. Then tenant has prior rights of dividend against the other creditors.
    * Successful average bidding rate of court auction (May 2015-Apr 2016)
     

  2) Need to check information
  • Everybody can access information such as ownership of property, leagla actitions against the property, collateral security established to the property, etc. from Court Registry office
  • Cautiously check the above information, especially owner, legal actions and collateral registration (senior lien)
          * If there is any senior lien, tenant should consider the amount and expected recovery
             amount in case of court auction (please get confirmation from real estate agent before
             contract completion because the information is written by Korean).

 3) Tenant protected by law (Protection under Housing Lease Act)
  • A foreigner need to register in immigration office as a resident in Korea and then  the Alien Registration Card must be updated upon the place of sojourn as soon as possible
  • Need stamp certifying definite date from Dong office (community service center)
  • Occupy (live in) the leased house
         * You may lose your priority against the property when you move out. Thus you
            should not move out until the key money pay back to you.

4) Establishment of leasehold

  • File the leasehold to Court Registry Office
         -> You hold a first lien on the property for the key money
  • Landlord must agree the establishment of leasehold
        -> Most landlords are usually reluctant to agree it thus need to persuade them 

* For the other information, please refer to http://www.asiaoptions.org/housing-in-korea/,
   https://www.angloinfo.com/south-korea/how-to/south-korea-housing-renting-accommodation,
   http://blog.thearrivalstore.com/life-in-korea/korean-rent-apartment-in-korea/