When someone finally answered the phone, it wasn’t his host. It was a police officer who told Bae that her landlord had been found dead in a motel in Seoul a few days ago.
Bae described that moment as one of the worst moments of his life. He is one of hundreds of South Koreans who were unable to get their massive housing deposits back after the previous death of their landlord, known as the “villa king” by the local press and identified by government officials only by the last name Kim. It pays its tenants back.
Government officials suspect that each of Kim’s tenants will lose hundreds of thousands of dollars. bae said she and her husband face the possibility of losing their entire deposit of 254 million Korean won, or about $200,000.
Unlike many parts of the world where a rental deposit is usually equivalent to a month or two of rent, many homes in South Korea are rented on a deal called “jeonse”, also known as key money. Rather than paying monthly rent, tenants give landlords a large upfront deposit—usually hundreds of thousands of dollars. The landlord earns interest on the deposit and, in theory, returns the deposit. at the end of the lease.
But Kim, who owned more than 1,000 properties at the time of his death, According to former tenants and government officials, most of those who stayed in small apartments known as “villas” in South Korea had repaid little of the tens of millions of dollars they had received as security deposits. According to one estimate, the total outstanding amount is $160 million, according to JoongAng Ilbo, a South Korean newspaper. Most of the affected properties are located in or around the capital city of Seoul.
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As law enforcement investigated, the scale of the problem caught the attention of senior politicians.
Chairman Yoon Suk Yeol pledged to take action to ease the suffering of the villa king’s “innocent victims” on a national televised program last week. South Korea’s minister of land, infrastructure and transportation, Won Hee-ryong, promised to ensure that Kim’s tenants “don’t have to cry”.
The financial fiasco caused public turmoil as hundreds of tenants faced the prospect of losing several years of income. According to the World Bank, the average wage earner in South Korea earned about $35,000 in 2021, which is related to Bae’s income. His deposit would be worth roughly six years of his salary.
Officials said a government task force was investigating how Kim spent his tenants’ deposits. Investigators are also South Korea’s Ministry of Justice is investigating potential crime and the possibility of Kim’s accomplice, according to a government statement, as it seeks legal ways to help tenants get their deposits back.
But there is no immediate remedy for its tenants. Now they have to wait months, possibly years, for the courts and government officials to sort out the financial mess Kim has left behind.
Debts of a deceased person can be paid off if their relatives agree to inherit their wealth. But according to South Korea’s semi-official Yonhap News agency, Kim had an unpaid property tax bill of about $5 million and tens of millions of dollars in unreturned deposit money. According to the Korea Housing and Urban Guarantee Company, a state-sponsored insurance company known as HUG, Kim’s family has so far refused to take on the liabilities. A HUG official said the insurer was in contact with family members and spoke on condition of anonymity to speak freely about the case.
Kim’s relatives could not be immediately reached for comment.
Bae was among the tenants who insured their deposits through HUG. But HUG said it can’t pay customers like Bae the insurance money, at least for now, because there’s no way to sue the deceased Kim or any of his relatives who aren’t legal heirs.
Bae said the promises of senior politicians and government now “seem empty” and sound like political theatre. No proactive contact was made by law enforcement. “They inspire very little confidence,” he said.
“They somehow failed,” said Kwan Ok Lee, professor of urban planning and real estate research at the National University of Singapore, about the government’s lack of assurance for jeonse tenants. Lee said that the fiasco that began with Kim’s death was notable for its scale, but “this is not the first time something like this has happened”.
“This was expected,” he said. “That’s why it’s so sad.”
Lee said Jeonse was born out of the absence of a formal banking system when South Korea was a poor country in the 1950s. But in modern times, “most scholars agree that: [jeonse] “It’s an inefficient system,” he said.
“Jeonse has caused a lot of trouble,” he said. These issues, such as the risk of becoming a victim of fraud, disproportionately affect low- and middle-income tenants – people who are “trapped in this way”.
Jeonse’s problems seem to be on the rise. In 2018, HUG paid $63 million in insurance for 372 homes whose owners were unable to pay their tenants’ deposits. As of October this year, HUG had paid about $640 million in insurance for 3,754 homes, according to figures the company gave to South Korean lawmaker Kim Hack-yong.
Lee said that South Korea’s real estate market is “slowly shifting towards a monthly rent system,” as in other countries.
It would be difficult for the government to abruptly remove jeonse, as many tenants and landlords prefer, but “at least they may have better mechanisms to protect tenants,” he said.
Hairdresser Bae expresses disappointment with jeonse system, saying “there should be more stringent legal safety valves” for It protects tenants against the possibility of losing all of their deposits.
He said that if legal protections are not put in place, then it is time for the jeonse system to go.