Korea will hold jeonse deposits at HUG and pay landlords out of the float

South Korea's Ministry of Land, Infrastructure and Transport said on the 20th that it will open applications in late September for a "deposit-safe trust program" that converts monthly-rent units into jeonse homes, with the tenant placing the lump-sum deposit with a lease stabilization body rather than with the landlord ^[1][2]. The Korea Housing & Urban Guarantee Corporation (HUG) will do the practical work of custody, management and return of deposits, which moves the counterparty on the largest unsecured loan most Korean households ever make from a private individual to a state guarantor ^[3].

The mechanics are a three-party contract between the body, the landlord and the tenant: the tenant's deposit goes to the body, which invests it and pays the returns to the landlord each month as rent ^[2]. Those deposits are to be pooled into a housing supply promotion fund and invested in areas such as HUG-guaranteed project financing loans, targeting returns in the 4% range for the landlord ^[9]. That is a closed loop worth noticing. HUG holds the deposit, owes its return, and also guarantees the construction loans the pool buys ^[3][9]. The program is billed as a follow-up to the fast-track housing supply measures announced on the 13th, and the funding channel is consistent with that ^[5].

For tenants, the pitch is rate arbitrage. Jeonse loans at 3-4% are cheaper than market jeonse-to-monthly-rent conversion rates of 5-6% ^[7], and because the body is responsible for returning the money, tenants skip separate deposit return guarantees and loan guarantees ^[8]. MOLIT's worked example is a Seoul multi-unit home with a 200 million won deposit, where the tenant pays 530,000 won of monthly loan interest instead of 740,000 won of rent ^[12]. That is 210,000 won a month, or about 2.52 million won a year ^[1], on an implied borrowing cost of 3.18% ^[2]. The 740,000 won it replaces implies a conversion rate of 4.44% on the same deposit, below the 5-6% range the ministry cites as the market ^[3], so the illustration is not built on the worst rent available.

Landlords give up control of the cash and take a yield instead. On top of the 4% range monthly return, registered rental businesses are exempt from the rental deposit return guarantee whose fees run 0.23-0.27% ^[10], worth 460,000 to 540,000 won a year on a 200 million won deposit ^[5], and income-tax support has been agreed with the Ministry of Economy and Finance ^[10]. Owners in regulated areas such as Seoul who relocate to the provinces can add a reverse mortgage paying 1-3% a year ^[11]. MOLIT's figure of roughly 1.2 million won a month for that combined case implies about 7.2% on 200 million won, which needs 3.2 points from the reverse mortgage and therefore sits at or above the top of the advertised band ^[4].

The demand side is real: conversion to monthly rent has accelerated as fraud fears met landlord preference, and MOLIT says landlords have held homes off the market over missed rent, vacancy and the burden of managing funds ^[14][16]. Younger and lower-credit tenants concentrated in non-apartment and provincial housing face the highest conversion rates ^[15].

Scope is modest so far. Any landlord and tenant may apply with no restriction on housing type, homes valued at 2 billion won or less get priority after checks for building violations, and applications run either landlord-first with matching or as a pre-agreed pair ^[6][17]. LH will supply 500 purchased rental units through the body in 2026 as a trial for young non-homeowners ^[18].

Detailed procedures, contract terms and expected returns are due with the late-September call ^[19]. The terms that matter are whether the 4% is a target or a promise, and who absorbs the gap in a year when HUG-guaranteed PF loans do not pay it ^[9].