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Financial repression and housing investment: An analysis of the Korean chonsei


  • Kim, Jinwon


South Korea has a unique kind of rental contract, called chonsei. The tenant pays an upfront deposit, typically from 40% to 70% of the property value, to the landlord, and the landlord repays the deposit to the tenant upon contract termination. The tenant is not required to make any periodic monthly rental payments. The main goal of this paper is to show why such a unique rental contract exists and has been popular in Korea. The model shows that chonsei is an ingenious market response in the era of “financial repression” in Korea (Renaud, 1989), allowing landlords to accumulate sufficient funds for housing investment without major reliance on a mortgage. The model also shows that the tenant, who suffers from insufficient mortgage borrowings, can access cheaper rental housing via chonsei than when only monthly rental housing is available. The model predicts that the chonsei system should fade out when arbitrage gains from housing investment disappear. An implication of the model is that the chonsei renter may save while the landlord and the owner-occupier put all their assets into housing and thus have no financial savings. This hypothesis is empirically tested and confirmed.

Suggested Citation

  • Kim, Jinwon, 2013. "Financial repression and housing investment: An analysis of the Korean chonsei," Journal of Housing Economics, Elsevier, vol. 22(4), pages 338-358.
  • Handle: RePEc:eee:jhouse:v:22:y:2013:i:4:p:338-358
    DOI: 10.1016/j.jhe.2013.09.001

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    References listed on IDEAS

    1. Navarro, Ignacio & Turnbull, Geoffrey K., 2010. "Antichresis leases: Theory and empirical evidence from the Bolivian experience," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 33-44, January.
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    Cited by:

    1. Moon, Byunggeor, 2018. "Housing investment, default risk, and expectations: Focusing on the chonsei market in Korea," Regional Science and Urban Economics, Elsevier, vol. 71(C), pages 80-90.
    2. Lee, Junhee & Song, Joonhyuk, 2015. "Housing and business cycles in Korea: A multi-sector Bayesian DSGE approach," Economic Modelling, Elsevier, vol. 45(C), pages 99-108.
    3. So Jung Hwang & Hyunduk Suh, 2018. "Analyzing Dynamic Connectedness in Korean Housing Markets," Inha University IBER Working Paper Series 2018-4, Inha University, Institute of Business and Economic Research.

    More about this item


    Chonsei; Korean housing market; Financial repression; Household saving; Tenure choice;

    JEL classification:

    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • G2 - Financial Economics - - Financial Institutions and Services
    • D1 - Microeconomics - - Household Behavior


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