The Only Lease System In The World

The only lease system in the world

In Korea, there is a unique lease system called Jeonse. Jeonse is used a lot, accounting for 40% of the total lease and rent system. In this story, we will dig deeper into the Jeonse that exists only in Korea.

The definition and origin of Jeonse

Although the exact origin of this leasing system is unknown, it seems to have originated in the 1876 Treaty of Ganghwa Island. Jeonse refers to leaving the deposit to the landlord, leasing the house, and getting the deposit back at the end of the contract period. It’s like long-term rent with a lump-sum deposit.

The difference between Joense and monthly rent

What’s the difference between jeonse and monthly rent? Monthly rent is the most common way to rent a house during the contract period by paying monthly rent to the landlord. On the other hand, if you deposit the lease cost to the landlord when you sign a house, you don’t have to pay for the contract period, and you get all the deposit back after the contract period ends. 

Why do landlords lease a house with Joense?

It would be advantageous for the landlord to get paid monthly, so why lease the house on a Joense basis that gives the money back to the tenant? Back 40 years ago, during the industrial development period in Korea, the bank’s interest rate was more than 20 percent. During the contract period, the landlord could earn a lot of money by depositing the deposit in the bank. But why is jeonse still one of the common leasing systems today, when interest rates are low? That’s because there’s liquidity in the funds. Landlords can pay off debts incurred during the sale of their homes through the deposit of Joense, or they can use the deposit of Jeonse to invest elsewhere. For these reasons, Joense system still exists. 

The advantages of Jeonse

What are the advantages of Joense for tenants? The most significant advantage of the lease is that the tenant can get the lease back at the end of the contract period.

It is easy for tenants to save money because there is no other cost for the house than maintenance during their stay, except for the damage caused by the time value of the capital. As a result, there is no expenditure of the money.

If you don’t have enough money to pay by Joense, there’s a way to borrow it from the bank. If you have a job and are guaranteed social status, you can borrow more than half of the deposit of the lease. Even if you don’t have enough money, you can lease the house you want at a low cost. 

The shortcomings of Joense

However, the Joense has a fatal drawback of ‘risk.’ Since it is a structure in which money is left to the landlord, not the bank, there may be cases where the deposit cannot be returned after the contract is over. For example, suppose the landlord uses the lease money elsewhere during the contract period or cannot return the money even though the contract period is over. In that case, the tenant cannot get the money back immediately. Legal systems protect tenants, but loopholes in the law pressure tenants.

What do you think about the Joense system that exists only in Korea?


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