Korean Job Discussion Forums

[harryh]

Has anybody had experience in getting a 'Jonsae Loan'?

I would have thought that a loan would work out in the following way,

Borrow X for Y years, pay back monthly with interest over the loan period of Y years. Much like I did for a car. I got a car loan for three years and paid 18.9% interest on the laon a few years back.

I was talking to a co-worker the other day who said that she had a Jonsae loan. This is how it was explained to me.

She borrowed 100,000,000 won from a bank, and then got an apartment on Jonsae at 100,000,000 won for a two year contract. She gave the owner the borrowed money, and says that she now pays 400,000 a month to the bank (in effect the interest on the loan). At the end of the Jonsae contract she said that she'll receive the Jonsae money back from the apartment owner, and then will return the borrowed money to the bank.

Is this correct? Is it possible It sounds a bit better deal than walsae.

Has anybody else had a similar experience with Jonsae loans?

[PRagic]

Sounds about right, but you have to ask yourself what kind of place you're getting for 100 million!

Using the chunsae system, you'll always end up paying 'less' in rent if you figure the cost of capital as lost bank interest (or in the case you gave, interest to be paid). Of course, if you can invest and make more than that, then you're 'losing' more from the lump sum than you may actually pay in monthly rent.

These days, however, beware. Apartment prices are falling and chunsae rates are going up. Not good, especially if the owner has debt on or against the unit you're renting (something you MUST check out before paying chunsae).

You also have to find out the 'pecking order' of the building you're moving into if it has multiple units owned by the same owner. If you're last in, you're last paid should the property be forclosed, auctioned, and the proceeds divided up. In short, if you're going into a building as the most recent renter and the owner has a buttload of debt, you're in a precarious situation to say the least.

[Weigookin74]

[Lolimahro]

The OP's post sounds correct, from what I understand.

So how does one go about geting a jeonsae loan? To my knowledge, you have to be employed by a company (not a public school / hagwon teacher on an E-2 visa).

[Captain Corea]

Registered or not, it's not always easy or possible to get your money back. My bud just went through what PR mentioned... an over indebted landlord. The law was in the renter's favor, and the decision went to him... But there was a long line of people wanting money.

[PRagic]

Great input, Weigookin74. YES, always register your contract at your local office!

We've always lived on Chunsae, but have never taken out a loan for it. I do have one friend who took out a mortgage for under 50 million. He has an E7 visa and paid it off pretty quickly, though.

Don't know if E2 or E1 qualify. E1 might if you're on a tenure track with a 4 year contract. F-series (2, 4, or 5) visa holders can probably get the loan.

[PRagic]

And the situation described by Captain Corea is unforunately not all too uncommon.

I remember we looked into a place a few years back. It was the top two floors of a newer building with a big company as the owner. The chunsae was only 300 million, but the place was unreal.

So I asked. The building was worth about 1.2 million US. The company was in hok for most of it. If for whatever reason the company went bust and defaulted, the building would go to auction and sell for WAY less than 1.2. The bank ALWAYS gets paid first, so that would have left...yup...nothing for us. Poof...300K gone.

Oh, no...said the company and the real estate people. This company is going places! They're red hot!

Uh huh. About a year later we walked past the place and it had changed hands. The company went belly up. The building sold at auction for about 800K.

If it seems to good to be true, it usually is. I wondered why someone in the company didn't want to live in that pad! Now I know! Whew!

[Chris.Quigley]

So... I have been wondering for a while how this system works. (What are the economics of it?). If someone could explain it to me, I would appreciate it.

My basic understanding so far (please correct me if I am wrong).

Renter: gives owner the key money

Owner: invests key money and makes their profit on the interest (rather than the rent).

Then, at the end the owner returns the deposit to the renter.

Am I right?

I am still confused though...

Say they take a 100,000,000Won deposit. In order to earn 400,000 Won/Month in interest they would have to be getting 4.8% interest from the bank/other investments. Which bank pays 4.8% interest?

Say I am an owner. I get a loan for 100,000,000 Won and I buy an apartment. I then rent it out and get a 100,000,000 Won deposit, which I invest.

I would be paying interest on the 100million won... and collecting interest on the 100million won. So... I would make money on the spread...
But, I have an issue with this...

HOW DOES THE BANK MAKE MONEY?

The bank isn't going to loan me money at 2% and pay me interest at 4.8%... That doesn't make any sense. (Even if this transaction goes threeways: Renter borrows, owner borrows, Bank lends to both... but its all the same money... even still this doesn't make any sense.)

I also see a lot of ethical issues that could easily arise with this system... Basically, renters get screwed.

I know... I probably sound like I am high... But, this system is confusing.

[PRagic]

Historically, the cost of capital here was quite high, and even then, not everyone had access. If you wanted to buy a place and live on a floor, then you needed to pay quickly. Chunsae was one way to get your hands on the coin. A lot of people picked up buildings or an extra apartment or two this way when the real estate market was skyrocketing.

You have described the current state of affairs correctly, which is why chunsae rates have been going up so much. More people who don't need the lump sum and would like to generate income are now choosing to collect monthly rents. Those who do need to get a lump sum still need to go for chunsae, but to keep up with the market, they need (and WANT) larger sums.

Normally, this would correct itself in due time. Now, however, the real estate market here, beginning in the newer satellites of Seoul but coming soon to a neighborhood near you, apartment and villa prices are going to start tanking. Higher chunsae for higher risk? Nope. Something's gotta give.

[Yaya]

[Lazio]

[Swampfox10mm]

We tried to get more Jeonsae, but were denied. As mentioned, you can't get the full amount (or everyone would be doing it).

FYI, Jeonsae seems to be falling out of favor with rentors these days. They want big cash amounts coming in every month. No trust in stocks.

[harryh]

[Ramen]