Reading the Economist newspaper the other day I stumbled upon an article about an interesting practice, called Jeonse, which happens in South Korea.

Rather than pay rent fees to the landlord, rent is a sum of money paid to the landlord for living in an apartment/residence they own which generally cant be recouped, they pay a fixed sum of money (typically between 50-100% of the market value of the property) to the landlord. The landlord then invests this money, and when the lease on the property has expired, pays the renters back their fixed sum.

This way the renters can save up to afford their own house whilst the landlord lives off the interest he accumulates by investing the lump sum. The cost of renting a home for the renters is the opportunity cost on investing the money themselves. Both parties win, compared to the normal practice of paying rent where the only benefit for the renter is having a place to live (usually at the expense of not being able to save for their own mortgage).

The only downfall to this practice is that it is impractical when global interest rates are so low. Landlords aren’t able to make a large enough profit to make such a practice economically feasible, and so either have to increase the value of the fixed sum thereby bidding people out of the market, or have to revert back to a monthly rental fee system, until interest rates recover.

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