Gov’t to flesh out measures to support victims of housing rental scams

South Korea’s finance ministry said Wednesday it plans to come up with detailed measures to support victims of massive “jeonse” scams involving thousands of homes and delay auctions to prevent imminent evictions.

The measure came as three victims took their own lives recently after losing rental deposits in a scam in the western city of Incheon.

South Korea plans to send letters to banks and other financial institutions to delay auctions of homes involving the rental scams, according to the Ministry of Economy and Finance. The ministry estimates 2,479 homes in Incheon are affected by the scam.

The move is aimed at buying time for the victims and preparing measures for them, as they can be evicted when the homes go to auctions.

“In addition to the measures to delay the auctions, the government plans to take more actions, including financial support, to help victims promptly recovery from damages and gain housing stability,” the ministry added.

Under South Korea’s jeonse system, tenants pay a large lump-sum deposit, known as key money, to the landlord, which is then returned at the end of the rental agreement, usually lasting two years. During the lease period, the tenants do not pay monthly rent.

The decades-old system allows people to purchase homes with just the “gap” between the market value and the deposit. It is especially attractive during a boom in the market, as they will have no problem finding new tenants to return the deposits while housing prices continue to go up.

However, the system comes with a certain level of risk, as some landlords may struggle to secure new tenants who are willing to pay as much as the previous ones, particularly when the market value of the property drops below the amount of the deposit.

In certain situations, landlords may deliberately hide the fact that they have a mortgage on the property, which can result in other creditors being given priority during an auction for the home.