The Jeonse system, sometimes called "key money" is one of the various systems in South Korea that people use to get access to incredibly expensive housing in lieu of purchasing it.

In a basic sense it's a long-term loan to the property owner, usually in the amount of 70-80% of the total property value, that you get back at the end of your lease. In exchange the following things happen:

- The property owner get lots of cash they can use for investments.

- The tenant lives rent free or at a very low rent considering the value of the property -- allowing them to save significant income for future housing or investment opportunities.

- The tenant gets all of their money back at the end of the lease.

The system is obviously surprisingly fragile, especially in a market that is in a downturn (the IMF period was a big one for example), or if the property owner over leverages the Jeonse money and can't pay it up at the end of the lease.

Jeonses are typically viewed as a stepping stone for young families as they accrue their own savings in preparation to buy their own property to live in. It works because unlike renting, you aren't simply burning your money in a fire every month, you get it back and can add any savings made during the lease to that value to either find another place to Jeonse, or buy a property if you have enough.

Mortgages of course exist, but aren't as favorable as they are in the U.S. and there are all kinds of ownership schemes/systems in place that would make the average American's head spin, often financed by the property developer instead of a bank.

There is also insurance for the tenant, but as you might guess the terms are strict and getting a payout can be difficult. "Insurance fraud investigator" is not an uncommon job title.

Of course this system has caused problems for housing supply and is considered a large part of why apartments in Korea are so expensive. A landlord can simply leverage jeonse after jeonse to acquire massive numbers of properties. Some recent laws put high property taxes on investment or "second" properties, but people find ways around those laws by using family members and friends to "buy" the properties. The state doesn't want to get in the business of repaying tenants as it would incentivize risky investments on the part of landlords, and the state's strategic interest is in increasing the housing supply to lower prices.

Deposits don't sit in escrow as it's intended that the landlord is able to use that money to make themselves money to offset what would have been monthly rent payments.

It's important to remember that from ~1953 to ~1997 or so, if you could get in a business or own any kind of property you could make incredible amounts of money. The market only moved up and there was virtually zero risk to this kind of property scheme. There was a brief "blip" from 1997 to 2003-2004 where it wasn't true, and then the market has basically been back to upward moving until COVID-19 hit again. So for maybe 3 generations, this has become the institutional way that real estate works and has made lots of people lots of money.

It's slowly changing as high-yield investment opportunities disappear and the government cracks down on predatory property speculators -- but it's still a very common system that's unlikely to go away any time soon.