The Korean real estate system is tricky in and of itself, and the renting system alone is enough to pique your interest. Galbijim has a great writeup.
Instead of paying a set monthly rent, apartment owners might ask for anywhere between half to two-thirds (or more) of the value of the unit for the year – all in one lump sum. Imagine paying a full year’s worth of rent all at once. Now consider that standard rent is usually only 10-15% of the unit’s market value per month – now try the 전세 rate of 50 to 75% of that same unit’s value. Oh, and make it more than a year – typical contracts are for two to three years. Ouch. Want the key? Pay the money. Starting to see one of the many reasons why young Koreans stay at their parent’s home after age 18? Who can be expected to pony up all that cash? Scared yet? You shouldn’t be.
If you are like countless other foreigners employed as an English teacher, your employer takes care of the process for you. Have you hugged your boss recently?
Typically the system enables the tenant to live rent-free (minus utilities and maintenance fees) and the apartment owner to take the key money and invest it. The owner makes money from the investments and returns to the principal amount when you move out. Everyone’s happy.
For apartments in America, we have a refundable security deposit that usually is equal to one or two month’s rent. When one moves out, pending that there is no damage done to the apartment, the tenant receives the security deposit back in full. I imagine that it’s called a security deposit because if the tenant leaves suddenly without notice, the money ensures the apartment manager has a least some security to fix the damages and to hold over until the unit can be rented again. However, the security deposit isn’t invested by the manager like in Korea.
Some 전세 contracts also require a small monthly rent in addition to the lump sum but then again all contracts are different. Thankfully, unlike in America where when you sign on the dotted line you commit regardless to what you signed, in Korea, it is expected that the person offering the contract to clearly explain the contract until you understand. Talk is cheap? Not in Korea.
Speaking of cheap, there is an alternative that seems a bit more familiar to Westerners. 월세 is much closer to the typical rent process – a relatively small deposit up front and a monthly rent bill. Both systems are common but 월세 carries more of a social stigma. Most Koreans tend to stay at their parent’s house until married and in the meantime, live fairly conservatively (financially speaking of course). This means that these young professionals and university graduates are able to save up enough money to put down key money on their own place one day. Or outright buy the place. Below is a little chart I whipped up to represent roughly how the residents of Seoul pay for their property.
Key money is an interesting concept – like one of those “Man, why didn’t I think of that?” concepts. However, it’s a double-edged sword. On one hand, rent is taken care of for the year (or two or three) so that’s one less thing to worry about. But, it sure is a lot of money to front all at once.
But, it looks like things are changing for expats. If you are in the market and are feeling a bit overwhelmed, there are some companies that exclusively cater to expats. Also, information about the legal rights of tenants and limitations of landlords are becoming more readily available in English. For that matter, listen to this great podcast about an expatriate who had a renting problem and solved it through the Korean legal system. An informative story to say the least. Lastly, here’s another nice breakdown for anyone looking to secure their own place in Korea.
For more cultural insight, check out this lengthy but well-put together post by everyone’s favorite Kiwi. You rock James.
Thoughts?
