Monthly rent with variable deposit: A new form of rental contract in Korea

In this paper, we describe the structure of the monthly-rent-with-variable-deposit (MRVD) contract, a distinct type of rental contract in Korea. We demonstrate that the Chonsei contract is one variant of the MRVD contract. To explain the MRVD contract, we propose a leverage-effect-seeking hypothesis...

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Bibliographic Details
Published in:Journal of housing economics 2010-12, Vol.19 (4), p.315-323
Main Authors: Lee, Chang-Moo, Chung, Eui-Chul
Format: Article
Language:English
Subjects:
Contracts
Deposit-to-monthly-rent conversion rate
Housing prices
Korea
Leverage-effect-seeking hypothesis
Market analysis
Measurement
Monthly-rent-with-variable-deposit
Monthly-rent-with-variable-deposit Leverage-effect-seeking hypothesis Deposit-to-monthly-rent conversion rate Korea
Price level
Real estate market
Rent
South Korea
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Summary:In this paper, we describe the structure of the monthly-rent-with-variable-deposit (MRVD) contract, a distinct type of rental contract in Korea. We demonstrate that the Chonsei contract is one variant of the MRVD contract. To explain the MRVD contract, we propose a leverage-effect-seeking hypothesis. Based on this hypothesis, we are able to elucidate a variety of rental market conditions in Korea. Our hypothesis is consistent with the simultaneous existence of several types of rental contracts and various combinations of monthly rent, as well as the up-front deposit in the MRVD contracts. We also focused on the deposit-to-monthly-rent conversion rate, a critical factor in the Korean rental housing market. Our hypothesis indicates that conversion rates vary across local markets depending on local market conditions, such as the expected house price appreciation rate. The results of our data analysis demonstrate that our hypothesis more adequately explains the observed trend in the conversion rate, as well as that in the MRVD contracts.
ISSN:1051-1377
1096-0791
DOI:10.1016/j.jhe.2010.09.005