Korean jeonse and mortgage market after global fnancial crisis : An aggregate and micro-level analysis

Abstract

This paper empirically analyzes the market for Jeonse and housing finance in South Korea, approaching from multiple angles. Recently, controlling skyrocketing Jeonse price has become the biggest issue for the government regulators concerned with housing market stability. Despite extensive researches on the reasons for the unique existence of Jeonse contracts in Korea, there has yet been no empirical study on Jeonse in relation to mortgage market. It is usually assumed that under-developed housing financial market is partly attributable to the popularity of Jeonse, or that the dominance of Jeonse has prevented mortgage market from developing. Our research goal is to empirically prove these assumptions, and observe how the relationships change after the 2008-2009 global financial crises, using both aggregate and micro-level data. First, to analyze the static and dynamic relationship between Jeonse and mortgage at the aggregate level, we use OLS regression model and VECM (Vector Error Correction Model),respectively, as our frameworks. Second, at the micro level, we use panel data for the period after the financial crisis to identify the determinants of Jeonse`s quantity. Last, we use the same micro-level data to analyze the determinants of Jeonse price after the crisis. The paper concludes with a brief summary of the results and their policy implications.