The Acceleration of Jeonse to Monthly Rent: Government Policy and 2026 Rental Market Outlook

A Structural Inflection Point in the Rental Market

In 2026, the South Korean rental market is accelerating its structural shift from lump-sum deposit (Jeonse) contracts to monthly rent. As of the first two months of 2026, monthly rent accounted for 68.3% of total rental transactions nationwide. Notably, the share of monthly rent for apartments in the Seoul metropolitan area has also surpassed the 50% mark. This trend is analyzed not as a temporary fluctuation driven by interest rates, but as a structural inflection point resulting from the intersection of market dynamics and government policy changes.

Decreasing Jeonse Supply and Entrenched Preference for Monthly Rent

The primary driver behind the recent surge in the monthly rent share is the absolute shortage of Jeonse supply. Following a series of deposit non-return incidents in previous years, tenants continue to exhibit a strong aversion to the Jeonse system. This sentiment, compounded by a decline in the supply of newly built apartments in 2026, has severely worsened the supply-demand imbalance.

The lack of inventory is driving up Jeonse prices, effectively pushing tenants who cannot afford the higher deposits and loan interest rates into semi-Jeonse or pure monthly rent agreements. Simultaneously, landlords increasingly prefer monthly rent to offset higher property taxes and secure stable cash flow.

Government's Policy to Scale Back the Jeonse System and Tighter Financial Regulations

A key catalyst for the transition to monthly rent is the government's firm policy stance. The administration has defined the Jeonse system as a unique form of 'private financing' and diagnosed that excessive Jeonse loans in the past were the primary cause of housing price inflation and speculative gap investments.

Consequently, regulations on Jeonse loans are being significantly tightened under the mandate of managing household debt. Key policy changes include:

• Expansion of Debt Service Ratio (DSR) Application: The implementation of DSR rules for Jeonse loans has been fully rolled out, substantially reducing individual borrowing limits.
• Reduction of Guarantee Ratios: The guarantee limits and ratios for Jeonse loans provided by public institutions have been curtailed.
• Heavier Taxation on Multiple Homeowners: Starting in 2026, the standards for calculating imputed rent on the Jeonse deposits of multiple homeowners have become stricter, increasing the tax burden on landlords.

Polarization Outlook for the Second Half of 2026 and Implications

While the reduction of the Jeonse system has positive aspects, such as enhancing transparency in the rental market and improving household debt soundness, it presents an immediate challenge of increased housing costs for the working class.

Historically, Jeonse served as a buffer that lowered housing costs and acted as a stepping stone for capital accumulation toward homeownership. With this buffer disappearing, tenants facing fixed monthly cash outflows will inevitably experience a decrease in real disposable income. Furthermore, housing polarization is expected to worsen as the rental price gap between core urban areas and the outskirts widens.

Market participants approaching lease agreements must closely monitor the evolving financial regulatory landscape. It is essential to secure sufficient liquidity in preparation for reduced Jeonse loan limits and to establish conservative housing financial plans based on actual repayment capacity.