With the exception of recent years, South Korea has been dubbed the “Republic of Real Estate” or the “Invincible Myth of Real Estate,” indicating that real estate in South Korea has steadily risen over time.
This trend persisted despite the Federal Reserve in the United States maintaining a policy of “high interest rates” due to inflation. The real estate market in South Korea continued to rise throughout the 2010s.
“Did the Lease System in South Korea Fuel Property Price Increases?”
South Korea has a unique form of real estate system not seen in other countries. It’s called the “jeonse” system, which involves credit transactions between individuals without going through banks.
The rise in South Korean real estate prices can be attributed to government policies and the jeonse system, making it one of the catalysts for property price increases.
“Utilizing the Jeonse System to Increase Assets”
As introduced in the book, in a situation where real estate continues to rise, becoming a landlord through the jeonse system can yield substantial gains in property value differentials. The author of this book, Park Jeong-su, is an individual who expanded his assets by exploiting the flaws in this jeonse system.
By sharing his methods of using the jeonse system to increase real estate holdings and enabling others to expand their assets using his strategies, Park Jeong-su seems to have exploited loopholes in the system. While such strategies may be effective during periods of real estate price increases, they can have adverse effects during downturns in the real estate market.
“The Jeonse Scam Caused by Real Estate Downturns”
Recently, South Korea experienced a phenomenon known as the “jeonse scam,” where one person owns multiple properties on jeonse leases, and as real estate prices fall, the situation results in losses. While continuous gap investing during real estate booms can yield profits due to property value differentials, during downturns, all gains made can turn into “losses.”
However, from the landlord’s perspective, the risk in the jeonse system is somewhat mitigated. By exploiting this aspect, jeonse victims were eventually created.
“The Fruits of Successful Gap Investing Are Mine, While the Losses of Failure Are Yours”
Summing up the flaws in this real estate gap investing strategy in one sentence: “If successful, the gains are mine, but if it fails, the losses are yours.”
When real estate prices rise, successful gap investing results in profits for the investor. However, when real estate prices fall, the losses incurred are borne by the jeonse tenants.
Ultimately, investors have nothing to lose in this structure. This flaw was revealed in the recent downturn in real estate prices, leading to the term “jeonse scam.”
“The Fall of Park Jeong-su’s Real Estate Gap Investing”
The book titled “I Became a Landlord of 300 Properties through Gap Investing” by Park Jeong-su introduces a strategy of owning multiple properties through this “successful for me, failure for you” gap investing method.
At the time, the author saw South Korea’s average inflation rate as 4% and anticipated that both property sales prices and jeonse prices would rise accordingly. With the approaching jeonse bubble, he adopted a strategy of gap investing through the jeonse system.
As a result, the author likely profited from rising property prices over several years. However, in the recent downturn in real estate prices, this strategy could create multiple victims. In fact, searching for various articles related to Park Jeong-su reveals instances where he owned up to 452 properties at one point and caused harm to many individuals due to the decline in real estate prices.
At one point, he wrote books and gained fame through real estate gap investing strategies, even appearing on EBS broadcasts. However, ultimately, everything turned to dust during the real estate downturn. Instead of devising strategies based on one-sided views, it would have been better to consider both real estate booms and downturns and make stable investments accordingly.
In today’s environment of continued uncertainty, it’s essential to approach investments with more caution than in the past.
“I Became a Landlord of 300 Properties through Gap Investing”
- Author: Park Jeong-su
- Publication Date: July 18, 2016
- ISBN13: 9791155425039
- Available at Yes24: http://app.ac/TbMkqGl93