17 ms·

> Basically, if you put down a huge deposit (like $90,000: 50% to 90% of the value of the property), you don't pay any monthly rent and get the entire deposit b

> Basically, if you put down a huge deposit (like $90,000: 50% to 90% of the value of the property), you don't pay any monthly rent and get the entire deposit back when you move out. That's kind of a strange system. Any idea how it evolved there? Basically sounds like the landlord has to invest the money in such a way as to get a return that would be equivalent to rent but also safe enough so that they can return the deposit. I don't think I'd want to be a landlord there.

yongjik 5y ago
I believe the system was adopted in the old days with very high interest rates (~10% was common) - landlords could easily expect to make enough return. It's actually greatly favorable to landlords. Just think about what happens when one side is out of money. Under the monthly rent system, landlords can't get any more money until they evict the renter (which is a lot of hassle, anywhere in the world). Under the "jeonse" system, if the landlord becomes bankrupt, the renter is suddenly out of a large portion of their total wealth, and will be evicted by the new owner - without any money to find the next place. (There are insurances to protect renters but the risk is still there.)
- chrischen 5y ago
  Would the new landlord inherit the liabilities of the house?
  - yongjik 5y ago
    Not an expert, but I think there's a good chance the renter will lose money. When this happens, the landlord usually has more debt than the house is worth, so the renter has to compete with other lenders. (There's some legal protection, but I don't think it's bulletproof.)
- KptMarchewa 5y ago
  The nice option world be to guarantee in law that renter gets the property as debt.
Leftium 5y ago
I believe the system started when there were double digit interest rates (in the 80's?). Now interest rates are much lower, but Koreans got used to paying $0 rent and anything above that feels like they are being ripped off. One reason landlords like the system is because they can daisy-chain the purchase of multiple properties. They take the first cheonsae deposit and use it to purchase another property, then use the cheonsae deposit from the 2nd property to purchase a 3rd property, and so on... Even if landlords don't receive monthly rent, they expect to earn money on the increased value of the property. Cheonsae contracts are normally 2 years, then they can ask for more deposit or sell the property for a profit. More info: https://en.wikipedia.org/wiki/Jeonse https://en.wikipedia.org/wiki/Jeonse
- koolba 5y ago
  > One reason landlords like the system is because they can daisy-chain the purchase of multiple properties. They take the first cheonsae deposit and use it to purchase another property, then use the cheonsae deposit from the 2nd property to purchase a 3rd property, and so on... That sounds like it’d be a disaster during a liquidity crunch.
  - acchow 5y ago
    It becomes a too-big-to-fail system, with the government stepping in as needed (implicit subsidy).
    - sam0x17 5y ago
      How even would the government step in with it being landlord to landlord like that though? It's not centralized in any way.
      - mywittyname 5y ago
        Buying the assets for enough to cover the landlord's debts. then liquidate the assets for market value. The government could even just hold the assets themselves.
scottlamb 5y ago
> That's kind of a strange system. Any idea how it evolved there? Basically sounds like the landlord has to invest the money in such a way as to get a return that would be equivalent to rent but also safe enough so that they can return the deposit. I don't think I'd want to be a landlord there. I was thinking the same, but here's another way of framing it: they're like real estate agents [1] in the US, except that instead of keeping a 2.5%–5% commission at every sale, they keep the capital gains. They may not need to invest deposits at all to make money. To me renting under this system doesn't seem clearly better than buying. You're paying most of the money to buy the property, but it's not an investment. You can't come out ahead. But at least there's no risk or hassle of doing property maintenance. [edit: no, I just saw yongjik's comment: "Under the 'jeonse' system, if the landlord becomes bankrupt, the renter is suddenly out of a large portion of their total wealth, and will be evicted by the new owner - without any money to find the next place. (There are insurances to protect renters but the risk is still there.)" I don't think I'd like to rent under this system at all.] [1] and property managers who handle repairs and such, but that's probably not how they make their money at $50/month.

yongjik 5y ago

I believe the system was adopted in the old days with very high interest rates (~10% was common) - landlords could easily expect to make enough return. It's actually greatly favorable to landlords. Just think about what happens when one side is out of money. Under the monthly rent system, landlords can't get any more money until they evict the renter (which is a lot of hassle, anywhere in the world). Under the "jeonse" system, if the landlord becomes bankrupt, the renter is suddenly out of a large portion of their total wealth, and will be evicted by the new owner - without any money to find the next place. (There are insurances to protect renters but the risk is still there.)

chrischen 5y ago
Would the new landlord inherit the liabilities of the house?
- yongjik 5y ago
  Not an expert, but I think there's a good chance the renter will lose money. When this happens, the landlord usually has more debt than the house is worth, so the renter has to compete with other lenders. (There's some legal protection, but I don't think it's bulletproof.)
KptMarchewa 5y ago
The nice option world be to guarantee in law that renter gets the property as debt.

Leftium 5y ago

I believe the system started when there were double digit interest rates (in the 80's?). Now interest rates are much lower, but Koreans got used to paying $0 rent and anything above that feels like they are being ripped off. One reason landlords like the system is because they can daisy-chain the purchase of multiple properties. They take the first cheonsae deposit and use it to purchase another property, then use the cheonsae deposit from the 2nd property to purchase a 3rd property, and so on... Even if landlords don't receive monthly rent, they expect to earn money on the increased value of the property. Cheonsae contracts are normally 2 years, then they can ask for more deposit or sell the property for a profit. More info: https://en.wikipedia.org/wiki/Jeonse https://en.wikipedia.org/wiki/Jeonse

koolba 5y ago
> One reason landlords like the system is because they can daisy-chain the purchase of multiple properties. They take the first cheonsae deposit and use it to purchase another property, then use the cheonsae deposit from the 2nd property to purchase a 3rd property, and so on... That sounds like it’d be a disaster during a liquidity crunch.
- acchow 5y ago
  It becomes a too-big-to-fail system, with the government stepping in as needed (implicit subsidy).
  - sam0x17 5y ago
    How even would the government step in with it being landlord to landlord like that though? It's not centralized in any way.
    - mywittyname 5y ago
      Buying the assets for enough to cover the landlord's debts. then liquidate the assets for market value. The government could even just hold the assets themselves.

scottlamb 5y ago

> That's kind of a strange system. Any idea how it evolved there? Basically sounds like the landlord has to invest the money in such a way as to get a return that would be equivalent to rent but also safe enough so that they can return the deposit. I don't think I'd want to be a landlord there. I was thinking the same, but here's another way of framing it: they're like real estate agents [1] in the US, except that instead of keeping a 2.5%–5% commission at every sale, they keep the capital gains. They may not need to invest deposits at all to make money. To me renting under this system doesn't seem clearly better than buying. You're paying most of the money to buy the property, but it's not an investment. You can't come out ahead. But at least there's no risk or hassle of doing property maintenance. [edit: no, I just saw yongjik's comment: "Under the 'jeonse' system, if the landlord becomes bankrupt, the renter is suddenly out of a large portion of their total wealth, and will be evicted by the new owner - without any money to find the next place. (There are insurances to protect renters but the risk is still there.)" I don't think I'd like to rent under this system at all.] [1] and property managers who handle repairs and such, but that's probably not how they make their money at $50/month.