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Key Money Costs Going Through the Roof
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slothrop

Joined: 03 Feb 2003

Posted: Tue Feb 24, 2015 6:35 am Post subject:

edit Last edited by slothrop on Fri Jul 10, 2015 12:35 am; edited 1 time in total

The Cosmic Hum

Joined: 09 May 2003
Location: Sonic Space

Posted: Tue Feb 24, 2015 6:53 am Post subject:

brier wrote:

Lucas wrote:

People with secure jobs can get loans to pay for Jeonsae, then they just pay the interest of the loan, which is lower than paying monthly rent.

Finance dummy here. How is it possible to just pay interest and not pay down the principle of the loan?

Get an interest only mortgage...for say the first 5 years of a 25 year mortgage.
Keep renewing your mortgage every five years and applying for interest only for the first 5 years...lather rinse repeat.

motiontodismiss

Joined: 18 Dec 2011

Posted: Tue Feb 24, 2015 7:48 am Post subject:

saram_ wrote:

brier wrote:

Lucas wrote:

People with secure jobs can get loans to pay for Jeonsae, then they just pay the interest of the loan, which is lower than paying monthly rent.

Finance dummy here. How is it possible to just pay interest and not pay down the principle of the loan?

You don't even have to save up that much. My jeonse is 120 million and Shinhan Bank loaned me 96 million of it(80%). I pay 3.3%. The other terms are the same as yours.

atwood

Joined: 26 Dec 2009

Posted: Wed Feb 25, 2015 1:08 am Post subject:

saram_ wrote:

brier wrote:

Lucas wrote:

People with secure jobs can get loans to pay for Jeonsae, then they just pay the interest of the loan, which is lower than paying monthly rent.

Finance dummy here. How is it possible to just pay interest and not pay down the principle of the loan?

It is what some Korean banks offer to people who meet specific requirements. The requirements are not easy to match though. Check out Woori bank in particular about it.
My own situation.

Put down 70 mill together with wife from savings, assistance etc..
Bank Put down 80 mill... to make a contract together with the realtor/house owner.

Total Cheonsae worth is 150mill.
We are paying just 3% of the 80 mill that the bank put down each month..
So basically our monthly 'rent' is just over 200k for a nice home.
No additional costs. This lasts for 2 years at which point it is either renewed.. or we find a diff place. Max of 8 years and the interest rate may increase a bit during later contracts.

When I see what people back home (especially) pay monthly either in rent or mortgage I feel we are really blessed.
(But maybe I am missing something)

Anyway- I expect we may see some big changes in the Korean economy soon for the worse including a large property crash.
Save as much as you can while you can is what I am thinking.

You are missing the opportunity cost of that 80 million, which could be invested and making money for you rather than for the bank.

As for back home, with 80 million for a down payment, your mortgage payments would probably be quite reasonable. You may also be able to get a tax deduction for those payments.

BTW, is that an LG or a Samsung crystal ball you're using for your prediction about the Korean economy's future? Very Happy

atwood

Joined: 26 Dec 2009

Posted: Wed Feb 25, 2015 1:13 am Post subject:

slothrop wrote:

in 2009 when US property values crashed the korean market froze but still didn't budge. one way to look at it is that most Korean owners aren't leveraged out the ying yang so they can theoretically hold on to an empty apartment for 30 years until it gets torn down and a new one put up in its place. Another way to look at it is that in 2009 the value of Korean property took a huge hit as well, but ONLY when valued in US currency. remember, the won tanked to 1600 or thereabouts.

I wouldn't hold my breath waiting for korean property to plunge valued in won because if the world economy takes a dump the won will be the first currency to get flushed down the toilet. If anything, assets like property will be among the safest places to store wealth.

then again, I wouldn't want to tie myself down to a property either, because as governments near bankruptcy, low property taxes will be a thing of the past. remember, most of the wealth that exists in the world is imaginary. it only exists on paper. and most of the pension funds, public AND private are tied to that imaginary wealth. You know how it's in the news lately that the Kgov won't be able to pay it's pension obligations in 20 years or whatever?well, another stock market plunge like 2009 and change those 20 years to 2 years. before any government employee or retiree fails to recieve their taxpayer backed check, they will raise property taxes so high that no one in their rightmind would take an apartment off your hands for free. think it can't happenin Korea? it's already happened in Greece. property taxes on a small place are higher than you can get for rent. And some states in the U.S. have raised their property taxes alot since 2009 as well. The money to pay for all those underfunded pensions has to come from somewhere.

Property taxes are locally determined in the U.S. Any raises in the percentage of taxation have to be approved by voters.

Any links or specific information regarding your claims about Greece?

slothrop

Joined: 03 Feb 2003

Posted: Wed Feb 25, 2015 2:05 am Post subject:

edit Last edited by slothrop on Fri Jul 10, 2015 12:34 am; edited 1 time in total

atwood

Joined: 26 Dec 2009

Posted: Wed Feb 25, 2015 2:54 am Post subject:

slothrop wrote:

atwood wrote:

Property taxes are locally determined in the U.S. Any raises in the percentage of taxation have to be approved by voters.

You probably know more about it than me, but if that is true then I am shocked that people would continously vote to raise their own property taxes.LOL

atwood wrote:

Any links or specific information regarding your claims about Greece?

http://www.theguardian.com/world/2014/feb/28/home-ownership-greece-property-market

Quote:

Owners may be desperate to offload, but in a climate of pervasive uncertainty there are few who want to buy.

With over a third of households unable to meet tax obligations, four out of 10 Greeks recently told a Kapa Research poll they would willingly hand over properties to the state to fulfil future payments; one in three, unable to keep up mortgage repayments, feared their homes would be confiscated in 2014

The situation, says Bletas, is so dire that home ownership – at nearly 87% the highest in the EU – has become cause for black humour. "The joke now doing the rounds is: if you want to punish your child, you threaten to pass on property to them," he said. "Greeks traditionally have always regarded property as a secure investment. But now it has become a huge millstone, given that the tax burden has increased sevenfold in the past two years alone."

At no time has there been such a glut of property on the market, according to the Hellenic Property Federation (Pomida), which reckons more than 500,000 property owners want to sell. Across Greece, about 300,000 residences are believed to be empty.

http://greece.greekreporter.com/2014/02/17/taxes-on-greek-property-7-times-higher-than-2009/

Quote:

Homeowners in Greece, not being able to afford high taxes are often forced to grant their property rights to the state in order to escape the tax burden. Many brokers report that homeowners have asked tenants to pay taxes, bills and maintenance costs instead of paying rent.

I obviously know more about it that you. No municipality in the U.S. is "continuously" voting to raise taxes--why would you post such nonsense?

But U.S. citizens do from time to time vote for such increases in return for better and/or improved municipal services, usually regarding local education.

As for Greece, the government there seems to have had a big problem collecting taxes owed, and this was their inelegant solution. Greek homeowners' problems are of their own making.

But in no way is that comparable to the situation in SK, where all it took was for the president's poll numbers to hit a new low for tax increases to be withdrawn. So probably best to stop with your chicken little imitation.

meangradin

Joined: 10 Mar 2006

Posted: Wed Feb 25, 2015 3:43 am Post subject:

i'm no financial expert, but i have lived here for over 10 years so i know a little about life in the republic. when people talk about possible market corrections here in sk, it's won't be the type seen in north america or europe with properties losing more than 40% of their value. market correction here would be in 10-20% range as the govt., for better or worse, would step in with some such plan and keep the losses to a minimum.

slothrop

Joined: 03 Feb 2003

Posted: Wed Feb 25, 2015 3:58 am Post subject:

edit Last edited by slothrop on Fri Jul 10, 2015 12:34 am; edited 1 time in total

Stan Rogers

Joined: 20 Aug 2010

Posted: Sat Mar 28, 2015 1:55 am Post subject:

There is a new expression floating around among the Koreans. It's called the tin can home. It's an apartment or house whose key money deposit is now greater than the value of the property.

Yaya

Joined: 25 Feb 2003
Location: Seoul

Posted: Sun Mar 29, 2015 4:06 pm Post subject:

meangradin wrote:

i'm no financial expert, but i have lived here for over 10 years so i know a little about life in the republic. when people talk about possible market corrections here in sk, it's won't be the type seen in north america or europe with properties losing more than 40% of their value. market correction here would be in 10-20% range as the govt., for better or worse, would step in with some such plan and keep the losses to a minimum.

The thing is, in Korea, you need to put a hefty down payment when purchasing a property, as in 50% (correct me if I'm wrong). In the U.S. before the 2008 crash, you had lenders forking over a loan worth 150% of a home's purchase price so that the buyers not only wouldn't need a down payment but could also use funds to fix up the home.

I've heard of the real estate bubble rumor in Korea, but that has been floating around for seven years now. Not saying it cannot happen but I'm thinking it's unlikely.

atwood

Joined: 26 Dec 2009

Posted: Sun Mar 29, 2015 7:40 pm Post subject:

Yaya wrote:

meangradin wrote:

I believe the banks will now finance up to 70% due to home loan regulation changes.

Bubbles are tough to predict, but the current administration seems to be putting the bulk of their efforts for energizing the economy into aiding the real estate. Who knows how it'll all turn out?

Weigookin74

Joined: 26 Oct 2009

Posted: Mon Mar 30, 2015 6:29 pm Post subject:

jvalmer wrote:

saram_ wrote:

Anyway- I expect we may see some big changes in the Korean economy soon for the worse including a large property crash.

At first I thought so, but now it's been like 6 years of people saying this. When will it crash? Also, housing prices are reasonable in most of the country. The ridiculous prices are essentially isolated to a few areas in the Seoul capital region, and perhaps parts of Busan.

Koreans aren't mortgage happy, and it's still pricey compared to North America. Plus banks still are reluctant, historically too, to grant the average Kim a full-on mortgage. Koreans use the Jeonsae system to save for an outright purchase. And if they can't afford that, some even move their whole families back into their parent's home. Yes, that includes wife, and kids.

I'm not worried about a property cash. I'm more worried about household debt, and how that can ripple through the economy.

From everything I've ever heard, anks here don't like to give out large scale loans. Just look at most of the credit cards here. Pay the balance in full each month and get a low limit.

I do like this Jeonse system. I wish they did it in the west. I mean who wants to pay $1000 a month or more for rent? Such BS! My own hometown, bachelor's can be found for $500 a month. But any big city, that price will shoot up to $1000 a month.

In Korea, I rent a bachelor, albiet smaller than the one I had in Canada for 300,000 a month. I paid 3 million deposit 5 years ago. Out here in the provinces there seems to be more competition keeping prices down. I can get a two room (one bedroom apartment) for 5 million deposit and pay 350,000 won a month rent. I was looking at some larger places this morning. Two rooms were 400 to 500 k won a month a few years back. But prices have dropped a bit due to too much building. (These are modern buildings, I've been viewing, btw.)

seoulsucker

Joined: 05 Mar 2006
Location: The Land of the Hesitant Cutoff

Posted: Tue Mar 31, 2015 8:50 pm Post subject:

Thanks to an influx of clueless hipsters and giggling ***** scouring the streets in search of overpriced coffee and baked goods, the cheonsae prices in my neighborhood have skyrocketed. Our place went from 150M to 200M. Time to get out.

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