HUG Pays the Rent, Public Sector Holds the Deposit... First Call for Landlords for the Jeonse/Monthly Rent Safety Trust

[Financial News] The Jeonse/Monthly Rent Safety Trust, under which landlords receive monthly payments at an annual rate of 4.35% without worrying about late payments and tenants live in jeonse homes without fear of losing their deposits, has begun recruiting its first participants.
According to the government on the 4th, the Ministry of Land, Infrastructure and Transport and the Korea Housing & Urban Guarantee Corporation (HUG) issued the first call for landlords for the Jeonse/Monthly Rent Safety Trust that day. The initiative converts homes listed for monthly rent on the market into jeonse housing for tenants. As a follow-up to the “Plan for Rapid Housing Supply” announced on August 13, the contract structure, eligibility requirements and landlord benefits have now been finalized after consultations among relevant ministries.
The contract is signed by all three parties: the landlord, HUG as the rent and jeonse stabilization body, and the tenant. The money tenants deposit into a dedicated HUG account (the deposited funds) does not pass through the landlord, who also has no obligation to return it, making it difficult to regard as a security deposit under the Civil Act. As a result, the landlord and tenant enter into a “monthly rental contract without a security deposit.” The Housing Lease Protection Act still applies, just as it does to ordinary leases, guaranteeing the right to request a contract renewal, the 5% cap on rent increases and enforceability against third parties. Even if the home is seized or auctioned off because of the landlord’s debts, the deposited funds are safe because HUG holds them. Tenants pay 10% of the deposited funds when signing the contract and the remaining 90% when they move in.
Landlords receive monthly payments from HUG throughout the contract term at the agreed return rate specified in the announcement. The rate is reset with each semiannual announcement to reflect market interest rates, and once set, remains unchanged through the renewal contract. However, to preserve the original collateral function of a security deposit in cases such as damage to the home, HUG temporarily sets aside part of the deposited funds if the landlord raises an objection on reasonable grounds when the contract ends.
Eligibility restrictions apply only to the homes themselves. The income and assets of landlords and tenants are not considered. There are no restrictions on the type of home, but its value must be no more than 2 billion won, and existing senior-ranking debt must not exceed 80% of its value. Those in arrears on national or local taxes, among others, are barred from joining. Deposited funds are permitted only up to the prevailing market price for jeonse. In addition to the jeonse option, tenants may choose a rent-with-deposit option and pay monthly rent separately. However, in keeping with the goal of converting monthly rentals into jeonse, only semi-jeonse arrangements in which the monthly rent is less than 1/240 of the deposited funds will be accepted.
The plan also offers benefits to landlords. The government is pursuing a plan to cut income and corporate taxes by 50% on monthly proceeds that individual and corporate landlords receive from HUG, and to exempt them from the Special Tax for Rural Development, which is levied on the tax reduction at a rate of 20%. If Korean Home Pension subscribers sign a Safety Trust contract and move from a regulated area to a provincial area, they will be exempt from the actual-residence requirement, allowing them to receive both monthly proceeds and their home pension. If the home is vacant after a contract ends and before the next tenant moves in, landlords will also receive up to two months’ worth of proceeds on the condition that they continue with the Safety Trust. Tenants can use a dedicated jeonse loan to cover the deposited funds and, if they meet the requirements, will also be able to use the Buteumok Jeonse Loan within the year. Neither party needs to take out jeonse deposit return insurance or rental deposit insurance, reducing the burden of insurance fees.
The key will be whether landlords participate. The 4.35% return rate is lower than the jeonse-to-monthly-rent conversion rates for apartments and villas in Seoul. This means landlords may be better off converting the deposit into monthly rent and collecting it directly. In a Ministry of Land survey, only about 20% of landlords said they would be willing to participate when the assumed return rate was 4.85%. In a media interview last September, Shin Bo-yeon, a professor in the Real Estate AI Convergence Department at Sejong University, said that when interest rates fall, negative spreads would accumulate at HUG, which offers fixed returns, while rising rates would eliminate landlords’ incentive to participate. Shin had proposed linking the return rate to market interest rates.
First Vice Minister of Land, Infrastructure and Transport Kim Yi-tak said, “The Jeonse/Monthly Rent Safety Trust, under which the public sector takes responsibility for holding jeonse deposits, offers tenants jeonse without the worry of rental fraud and landlords monthly rent without the worry of late payments or vacancies—a new option.” Kim added, “As the program is in its early stages, we will carefully monitor its operation for any disruptions and provide incentives for landlords and tenants to participate. We will support the Jeonse/Monthly Rent Safety Trust so that it can take root as another form of contract in the rental market.”

[email protected] Jung Kyung-soo Reporter