JEON-SE, A unique house rental system in Korea, has now become a threat to many. Numerous real estate scams are putting overall housing stability at risk. Despite jeon-se being the most common residential contract in South Korea, the system is often abused by malicious fraudsters. The issue of jeon-se fraud came to light after the infamous “Villa King” incident in 2022 when a single landlord with hundreds of unit-homes called “villas” died, leaving his tenants’ deposit money forfeited. In response to several “Villa King” or “Villa God” incidents, the Special Act on Support for Victims of Charter Fraud and Housing Stability was introduced. It aims for the remediation of victims of fraud, yet the effectiveness remains questionable as it does not address preventive measures for fraud and still leaves a disproportionate amount of burden for tenants.

Anti-fraud measures

   Jeon-se is an upfront lump-sum deposit to the landlord, with the amount ranging from 60% to 80% of the market price of the house[1]. This deposit is returned to the tenants after the maturity of the contract. The owners take the deposit as an interest-free loan for other investments. It is the most common housing contract in South Korea as the tenants spend less for housing in the long term compared to monthly rents and the owners get to use the large deposit for other financial activities—such as paying personal debt[2]. Unfortunately, this system creates an environment for sophisticated housing scams of different kinds, putting tenants at risk of losing their deposits. The high severity of jeon-se scams in South Korea is evident in the scale of damage. The National Office of Investigation pushed for a nationwide crackdown on jeon-se fraud which found that the damage costs were ₩459.9 billion in total, with this amount belonging to 2,996 victims[3]. Victims’ suicides and the loss of such large deposits sparked a fierce public backlash, applying pressure on the government to compensate for jeon-se related damages due to the poor existing regulations. The Special Act on Support for Victims of Charter Fraud and Housing Stability was later proposed and passed on May 25, 2023[4]. The act stipulates a six-month moratorium on the auction of houses that fell victim to jeon-se fraud and provides low-interest loans to the victims for their recovery. 

Lack of preventive measures

   The major limitation of the Special Act on Support for Victims of Charter Fraud and Housing Stability is the absence of forestalling measures. The law aims for the compensation for victims of jeon-se fraud, rather than the prevention of the crime. Currently, jeon-se insurance is not a prerequisite for landlords, granting homeowners the means to avoid or even terminate housing insurance contracts at any time. As a precaution against these cases, mandatory housing insurance plans would be a possible solution. Insurance plans inform the tenants about the owners’ essential details—including tax payment confirmation and history of subrogation[5]. The third-party guarantee of a housing insurance plan would provide transparency on the identities of both stakeholders, precluding further fraudulent schemes. In addition to contractual obligations between the parties, preliminary inspections on suspicious house offerings would prevent misusage of the flawed jeon-se system, such as malicious abandonments.

Excessive burden for tenants

   Even after the enactment of the Special Act, the widespread fear of jeon-se fraud is notable among younger generations. More than half of the victims of jeon-se fraud were in their twenties and thirties—age groups likely already facing financial struggles[6]. Hence, house-hunting students and newly married couples tend to avoid looking at newly built “villas.” These building types typically become the target for jeon-se fraud; they are often advertised and misused as investment items for their lower costs compared to apartments. Some now prefer monthly rent over jeon-se despite the higher cost in the long term. The prevalence of jeon-se phobia is overall evidenced by the fall in jeon-se transactions, even after the enactment of the law; in Hwagok-dong, Seoul, the total number of jeon-se transactions dropped to half its original amount in a little over the last year[3]. Even with the introduction of the Special Act, it is still the tenants’ responsibility to look for and avoid houses with fraudulent landlords. The current law fails to prevent crimes in the first place, forcing the tenants to solely carry the burden of victimization. It seems clear that the jeon-se system itself and the following legal measures to prevent any scams should be improved to demand full accountability of the fraudsters—not that of the victims.

[1] Korea JoongAng Daily

[2] The Korea Herald

[3] MBC

[4] The Hangyore

[5] SBS

[6] Junggi Economy