Here's an example to explain jeonse. An apartment might have a purchase price of $500k and a jeonse "rental" price of $300k. If you rent under jeonse, you pay this $300k deposit to move into the apartment and you get it back fully when the lease expires. You could also pay monthly rent for $2k a month if you choose to rent on a monthly basis with low deposit.
Tenants like to rent under jeonse because it feels like free rent. The reality is that many tenants need to take out loans to make the jeonse deposit amount. Landlords make more with monthly rent because $2k of monthly rent is a higher return than you can make than receiving a $300k lump some to invest over the two year contract.
The reason why landlords rent under jeonse usually becomes they are really betting on property price appreciation. For the landlord to buy a $500k apartment, they only need to come up with $200k. They can use the $300k jeonse for the rest. When real estate prices increase, things go well. The apartment price appreciates to $800k and 2 years later, they can increase the jeonse price from $300k to $500k. Now you have $200k in extra cash to invest in your next property.
The opposite happens when real estate prices go down as they have been for the past 6-12 months. A landlord rented their property for $300k jeonse but now that prices have depreciated, they can only receive $200k on the market. When the current tenant's lease expires, they are supposed to get the $300k back but the landlord doesn't have this amount available in cash. They need to find a new renter and get money from them first.
With low interest rates, people could afford high jeonse amounts. These high jeonse amounts would lead to properties appreciating even more which would lead to even higher jeonse amounts. Now, interest rates are rising and you see cases like these.
> The opposite happens when real estate prices go down as they have been for the past 6-12 months.
I'm really nitpicking here but overall they've barely gone down over that period. Certain types of real estate may have gone down by 0.1-1% but that's negligible. The Korean news likes to bring it as if real estate is crashing but that's because even prices staying equal was unthinkable in the minds of many Koreans after decades of continuous increases.
Looking at demographics: https://en.wikipedia.org/wiki/Demographics_of_South_Korea in 1955 900.000 people were born in Korea. In 2022 about 250.000. The population in 2021 only decreased by 60.000 but this number will increase rapidly.
Seoul might not change for a few years but a population decrease of 1% each year will not leave the property market unaffected.
This factor is almost irrelevant (outside of the very long term which is impossible to predict) for several reasons.
2021 is an outlier with excess Covid deaths and also Covid restrictions (particularly strict in Korea) massively leading people to delay marriages which also affects birth rates (again, particularly in a conservative country like Korea). If you search population projections you'll see it will likely take decades before any significant impact is had.
The latest estimate is that the population will drop by roughly 2% over the next two decades. 2% over as many as two decades, during which many black swans can and probably will happen, is clearly very little.
But even that 2% in itself will have much less of an impact than one may expect. A large portion of the elderly population (I expect this to be the majority) lives in real estate that already sees virtually zero demand from the population below 60 years old. Younger people are not going to move into those places. For all the elderly living on the countryside, their passing will have no effect on real estate prices. For most living in cities it will only have an indirect effect at best; the undesirable housing they live in will eventually be demolished, freeing up land and thereby possibly driving down housing prices, but only if new housing is actually built on them.
Elderly poverty is unfortunately a massive societal problem in Korea. A common misconception is that Korea's high suicide rate is due to the high performancs pressure placed on youth but in reality that's only a tiny part of it with elderly suicide, often driven by poverty, is overwhelmingly the main cause.
The only reason property prices go up so much is because they are collateral for loans. When the government is growing the money supply and rates are falling the amount of credit and loans in the economy is increasing so things that can be bought with loans increase in price. The reverse happens when they raise rates.
When COVID first hit, we were forced to go default alive. We didn't let anyone go but implemented a hiring freeze for 6 months and we managed to grow revenues to become cash flow positive. Default alive doesn't necessarily mean having to let go of employees.
Just learned this recently as well. I live in Korea where I learned they were shipping waste to China. Recently, I believe China shut this off and we've been made much more conscious about our waste in Korea within the past year.
I think it's also about how you don't need the front of house elements for a delivery order. No need for extra real estate for tables, wait staff, etc. All you need is a kitchen, someone to cook the food and the ingredients.
That might be the theory. In practice, even if I click the "only on Deliveroo" option, I'm looking at a list of restaurants that spend a fortune on premises and their own marketing campaigns (including at chain level); they're selling on Deliveroo not because they don't already have high marketing and premises costs (to pass on) but because they're really not expecting enough takeaway orders to justify running their own delivery operation.
My favorite part of his history in business is how the company whose name he eventually adopted for his whole operation (Berkshire Hathaway) was actually one of his self-admitted stupidest acquisitions, one based on vengeance rather than strategy. Seems like an unspoken bit of advice from him: name your company after your biggest fuck up, so you'll never forget you're only human.
I believe high quality is key. We have been able to receive high reviews from our customers even though we offer little hands on training. In April, our average review was 4.6 out of 5. We are also rolling out an insurance product that is not widely offered in Korea at the moment.
We have review system to filter bad cleaners. When new cleaners onboarded, we thoroughly check their performance from our customers.
Also we assign high score cleaners to more customers. That review system keep our platform in high quality.
This sounds like a recipe for basically asking the cleaners to underreport their hours to "go the extra mile" in exchange for high quality scores. How do you avoid this?
Basically review system is very effective one to maintain high quality.
Not only review system, we are adopting insurance plan for our customers and cleaners. That is also attractive point for high experienced freelancer cleaners.
We believe there are plenty of ways to keep our customers happy.
Uber has a review system, yet lots of stories about low quality drivers. They may be low in overall % of rides but get lots of new coverage overtime somebody has an axe to grind. I think you need to consider this more carefully.
Intriguing. As a thought experiment, if San Francisco organizes a farmers market for Tomato farmers and city residents but stipulates that prices must be fixed at $2 per tomato, is that no longer a market by the economic definition, now that price discovery has been taken away?
Tenants like to rent under jeonse because it feels like free rent. The reality is that many tenants need to take out loans to make the jeonse deposit amount. Landlords make more with monthly rent because $2k of monthly rent is a higher return than you can make than receiving a $300k lump some to invest over the two year contract.
The reason why landlords rent under jeonse usually becomes they are really betting on property price appreciation. For the landlord to buy a $500k apartment, they only need to come up with $200k. They can use the $300k jeonse for the rest. When real estate prices increase, things go well. The apartment price appreciates to $800k and 2 years later, they can increase the jeonse price from $300k to $500k. Now you have $200k in extra cash to invest in your next property.
The opposite happens when real estate prices go down as they have been for the past 6-12 months. A landlord rented their property for $300k jeonse but now that prices have depreciated, they can only receive $200k on the market. When the current tenant's lease expires, they are supposed to get the $300k back but the landlord doesn't have this amount available in cash. They need to find a new renter and get money from them first.
With low interest rates, people could afford high jeonse amounts. These high jeonse amounts would lead to properties appreciating even more which would lead to even higher jeonse amounts. Now, interest rates are rising and you see cases like these.