The government decided to lower subscription qualification of jeonse deposit money retrieval guarantee insurance to less than 90 percent of housing prices, starting May.
The step is designed to prevent jeonse gap investing cheating, in which people purchase hundreds of villa units and rent them in jeonse long-term deposit money equivalent to their housing prices for the purpose of cheating the deposit money.
The Ministry of Land, Infrastructure and Transport (MOLIT) came up with comprehensive steps to prevent jeonse cheating and support victims in cooperation with related ministries on Feb. 2.
The takeaway of the steps is lowering subscription qualification of jeonse deposit money retrieval guarantee insurance, offered by Korea Housing & Urban Guarantee Corp. (HUG); cutting the rate of jeonse deposit money to housing price from current 100 percent to 90 percent.
The jeonse deposit money retrieval guarantee saw the rate of jeonse deposit money to housing price surge from 70 percent in 2013 to 80 percent in 2014 and 100 percent in February 2017.
Cheaters began to swindle jeonse deposit money after scamming villa occupants into making them jeonse contracts higher than market prices.
The government took the step to lower the rate of jeonse deposit money to housing price since it’s not easy for jeonse cheaters to buy hundreds of villa units and cheat deposit money at one time.
A villa crime kingpin, identified only as his family name Kim, died while owning 1,139 villa units.
The average rate of jeonse deposit money to housing price stood at 98 percent. If the rate is lowered, most of Kim’s units would not be qualified for the jeonse deposit guarantee insurance.
As of last year, 237,800 units were signed up for the jeonse deposit guarantee insurance, but 57,200 units or 24 percent of the total, saw the rate of jeonse deposit money to housing price top 90 percent.
Deputy Minister Kwon Hyuck-jin of the Housing and Land Office at MOLIT said with high probability of declining jeonse prices in the future, those who fail to sign up for the jeonse guarantee insurance will not rise much and the level of evading dangerous contracts had been set at 90 percent.
The 90 percent rate will take effect on May 1. Housing unit occupants who have already signed up for the jeonse guarantee insurance and are about to renew their contracts will have the current 100 percent rate until the end of December.
In return, the government decided to expand HUG’s jeonse deposit money retrieval guarantee money.
The government plans to raise its contribution to HUG’s capital and guarantee coverage lest the insurance product should be stopped.
Under the law on the HUG fund, HUG is now allowed to issue guarantee certificates below the limit of less than 60 times its net worth.
The scope of insurance premium discount will be eased from less than 40 million won in annual income to less than 50 million won, while the discount rate will rise from 50 percent to 60 percent.
Appraisal prices will be applied only when publicly noticed prices and real-transaction prices are not available for screening guarantee insurance applications.
Some public appraisers turned out to have colluded with landlords to inflate housing prices, abusing the fact that appraise prices are prioritized in determining the rate of jeonse despite money to housing price.