The Effect of Jeonse Fraud Incident on the Deposit-Rent Conversion Rate

Hayoung So

ERES from European Real Estate Society (ERES)

Abstract: The recent surge in Jeonse fraud has emerged not merely as isolated tenant damage but as a structural shock to South Korea’s rental housing market. In particular, the concentrated occurrence and public exposure of fraud cases in 2022 significantly increased tenants’ risk aversion, prompting the need for an empirical examination of how rising risk premiums affect the deposit-rent conversion rate. While previous studies have focused on landlord-side factors such as interest rates, price-to-deposit ratios, and landlords’ returns, there has been limited discussion on how market shocks influence tenant behavior and sentiment. This study addresses that gap by estimating the deposit-rent conversion rate using a machine learning model and conducting exploratory data analysis. The results show a notable upward trend in the conversion rate beginning in the third quarter of 2022, coinciding with heightened media attention to the fraud cases. However, no significant difference was observed between known Jeonse fraud hotspots and other regions, suggesting that the impact was widespread across the market. Higher deposit-rent conversion rates were also observed in central areas with strong expectations of future price appreciation, aligning with prior research that views Jeonse deposits as a form of leveraged investment rather than simple security deposit. Building on these findings, a statistical analysis incorporating the volume of news articles on Jeonse fraud was conducted. The results reveal that changes in the conversion rate are closely associated with increases in tenant risk premiums, beyond what can be explained by interest rates or price-deposit ratios alone. As social awareness of Jeonse fraud expands, tenant’s anxiety over Jeonse deposit recovery intensifies, leading to a decline in Jeonse demand and a rising preference for monthly rent contracts. These findings suggest that Jeonse fraud acts as a structural force reshaping lease contract patterns and the broader rental market. The study contributes to the literature by highlighting tenant-side risk considerations and conducting a micro-spatial analysis at the legal district level.

Keywords: Deposit-Rent Conversion Rate; Housing Market Structural Change; Jeonse Fraud; Risk Premium (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2025-01-01
New Economics Papers: this item is included in nep-upt
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