Predicting the Non-Return of Chonsei Lease Deposits in the Republic of Korea

Joung Oh Park, Jinhee Choi () and Guy Ngayo
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Joung Oh Park: Seoul Business School, aSSIST University, Seoul 03707, Republic of Korea
Jinhee Choi: Seoul Business School, aSSIST University, Seoul 03707, Republic of Korea
Guy Ngayo: Department of Strategic Manageemnt, Franklin University Switzerland, Via Ponte Tresa 29, 6924 Sorengo, Switzerland

JRFM, 2023, vol. 16, issue 10, 1-14

Abstract: Chonsei, a Korean housing lease system, enables landlords to acquire direct housing purchase funds without mortgages and offers tenants a cost-effective rental option. However, public concerns have arisen about potential landlord defaults, causing financial distress for tenants. This study examined the risk of non-return of the Chonsei deposit and developed a default prediction model using Chonsei contract data from the Korea Housing and Urban Guarantee Corporation. Starting with the components from Merton’s bond pricing model, we included variables that reflect contract-specific factors, macroeconomic conditions, and the Korean Chonsei practices. The findings revealed that higher house price volatility, elevated debt-to-house value, and risk-free interest rates positively correlate with non-return risk. Meanwhile, certain factors, such as longer remaining maturity, favorable macroeconomic conditions, and rising market Chonsei price trends, demonstrated negative correlations with non-return risk. Consequently, a logistic regression-based default prediction model, with eight risk factors that predict the deposit non-return, was suggested. By identifying risk factors and predicting the non-return risk of deposits, this study contributes to an informed policy decision in planning and practicing Chonsei contracts in the Korean housing market.

Keywords: Chonsei; default prediction; non-return of deposit; bond pricing model; underwater risk; rollover risk (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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