Can $290,000 Let You Live Rent-Free?

Rent-Free for $290,000?

Live Rent Free in Seoul for $290,000

Photo Credit – Pixabay

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Last Week, I stumbled across a very interesting article – “ItTakes $290,000 in cash to rent an apartment in Seoul” by Matt Phillips of Quartz.  The basis of the article is that under a Jeonse contract – a Korean tradition-  an individual can live rent-free!

How do they do this?  In a Jeonse contract, a strictly Korean tradition, tenants lend their landlord a significant amount of money – usually 40%-60% of the property’s value – instead of paying monthly rent.  In exchange for access to live on property for a specified period of months or years, tenants pay the landlord a lump sum of money.  This is essentially a loan, with the property as the collateral.  If the landlord were to default on it, the tenant holds the property as collateral.  If something were to go wrong with the loan, the house could be sold with more than enough money to pay the tenant back.

 Jeonse contracts can be traced back hundred of years in Korean history.  In the 1960’s and 1970’s, however, the popularity of these contracts grew.  As Korea became more industrialized their was as new need for housing in the cities and financing for economic activities.  During the 1990’s, the system boomed even more as it allowed citizens to bypass the troubled banking system.

 

While the whole rent-free concept is interesting, what I find even more exciting is what Jeonse contracts did to savings rates within Korean households.  During the 1960’s and 1970’s, household savings rates skyrocketed.  Why?  Because they were saving for a Jeonse contract.  $290,000 is not small amount of money, but in order to live rent-free, households started socking away significant amounts of money to make it happen. This proves that Korean households COULD save large sums of money!

Recently, though, household savings rates have plummeted.........Read More

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