A, who bought an apartment in Sangye-dong, Nowon-gu, for 1 billion won in hopes that apartment prices in Seoul would continue to rise, took out a dwelling mortgage from a bank and established a collateral of 300 million won to gather funds for purchasing a home.
The rest was financed through a leasehold tenant deposit (500 million won) and a capital and credit loan (100 million won). A paid an interest of 1.08 million won every month on a total of 400 million won in dwelling mortgage and credit loans at an average annual interest rate of 3.25% in 2021.
However, as interest rate hikes continued from the second half of 2022, the interest was set at 5% in 2023, causing the monthly payment to jump to 1.66 million won.
On top of that, as lease prices fell, A faced a situation where a new tenant was brought in for a deposit of 440 million won, requiring a refund of 60 million won to the existing tenant. Eventually, A's apartment was seized at the end of 2023 and was put up for auction last year.
Like A's case, buyers who hurriedly gathered assets to purchase homes, known as 'yeonggeul' buyers, are unable to bear the burden of loan interest and are passing their apartments on to auction. The number of apartment auctions in Seoul last year increased by more than 60% compared to the previous year.
According to the Court Registration Information Plaza on the 20th, the number of apartment auctions in Seoul from January to December last year recorded 3,267 cases. This is a 67% increase compared to 1,956 cases in 2023. It also nearly quadruples from 798 cases two years ago.
The winning bid rate, which indicates the ratio of successful bids to the number of apartment auctions in Seoul, has also declined. According to real estate auction data company Jiji Auction, the winning bid rate for apartments in Seoul in December last year was 39.8%. This is a drop of 8.5 percentage points from November last year (48.3%), dipping below 40% for the first time in nine months.
The winning bid rate, which refers to the ratio of the winning bid to the appraised price, has fallen for three consecutive months. The winning bid rate for apartments in Seoul fell to 97% in October, 94.9% in November, and 91.8% in December last year.
The interest in apartments in the Gangnam Three Districts (Seocho, Gangnam, Songpa) has also significantly decreased.
Last month, the auction for a 120㎡ unit in Songpa-gu, Jamsil Els, was passed over twice. Considering that units of the same size at Jamsil Els transacted for 3.232 billion to 3.334 billion won in October and November last year, the appraised price (3.28 billion won) appears to have been too high, leading to disinterest among auction participants.
A 120㎡ unit in Daechi-dong, Gangnam-gu, also failed its first auction at an appraised price of 3.89 billion won in December last year. Although the actual transaction price of a unit of the same size was 4.073 billion won in December last year, which was lower than the appraised price, it still did not find a buyer.
Real estate experts analyzed that the rapid rise in apartment prices in Seoul until the first half of 2022 resulted in 'yeonggeul' buyers hastily obtaining loans to purchase homes, unable to manage the increasing interest rates and strengthened loan regulations.
Lee Ju-hyun, a specialist at Jiji Auction, noted, "As high interest rates persist, the number of auction applications for apartments in Seoul has been increasing, and with the real estate market recession and political uncertainties, buyer sentiment has weakened, leading to more repeated failures in auctions and a buildup of properties."
Not only 'yeonggeul' buyers who cannot handle their interest due to high loan rates, but also self-employed individuals experiencing management deterioration due to economic downturn are seeing an increase in cases where their homes are seized, which has contributed to the rise in auction numbers.
Go Jun-seok, a professor at Yonsei University's Sangnam Business School, explained, "With the collateral loans taken out by 'yeonggeul' buyers falling into arrears, the number of auctioned properties in Seoul has increased, and self-employed individuals who took out credit loans for their businesses are unable to repay their interest, leading to foreclosure and auctions, thus raising the total auction count."
The accumulation of auction properties is expected to continue for the foreseeable future due to high interest rates, loan regulations, and political uncertainties.
Lee Ju-hyun remarked, "Considering that the number of auction applications has been consistently rising through the Court Registration Information Plaza, it will likely impact until the second half of this year, and as apartments from 'yeonggeul' buyers struggling with high interest continue to flood the market, bidder interest is low, so the winning bid rate will likely fall this year as well."
Professor Go Jun-seok stated, "If interest rates decrease this year, the number of auctions may reduce in a few months, but until the first half of this year, the supply of properties already awaiting auction in the market will continue to pour in."