This year, the number of homes in Seoul defaulting on loan repayments and going to auction is increasing. The housing market, which briefly recovered in the first half of the year, is experiencing another downturn due to strengthened regulations, and the slow pace of interest rate cuts appears to have led to an increase in 'young-gul-jok' (investors who have poured everything into buying). The scale of dwellings going to voluntary auctions recorded the highest level in 11 years last year, but if this trend continues until the end of the year, the number is expected to rise further.
According to the Supreme Court's registration information portal, there were a total of 1,869 applications for the commencement of voluntary auctions for real estate (buildings, land, and collective dwellings) in Seoul from January to July this year. This represents a 24% increase compared to the same period last year (1,510 cases).
Voluntary auctions occur when debtors fail to repay money owed, leading creditors such as financial institutions to auction off collateralized properties.
The most common type of real estate for which voluntary auction applications have been submitted includes collective dwellings such as apartments and officetels. The number of collective dwellings that have gone to auction was 1,532, accounting for 82% of the total.
The three districts of Gangnam (Gangnam, Seocho, and Songpa) were not exceptions. From January to July this year, there were 331 applications for voluntary auctions in the three districts, a 64% increase compared to the same period last year (202 cases).
The scale of real estate going to voluntary auctions is also skyrocketing nationwide. As of July this year, 33,035 applications for voluntary auctions have been filed across the country, representing a 20% increase compared to the same period last year (27,527 cases).
In the real estate market, there are expectations that if this upward trend continues, the scale of properties going to voluntary auctions will be larger than last year. The number of real estate applications for voluntary auctions last year was 139,874, marking the highest level in 11 years since 2013 (148,701 cases).
The increase in properties being auctioned is due to the prolonged repayment burden caused by high interest rates, leading to a rise in 'young-gul-jok' who are unable to fulfill their debts. Housing mortgage loans (known as 'judae-dy) sold around the time of the rapid surge in housing prices in 2020 are now starting to see rate fluctuations this year. While the mortgage rates were around 2%, they have recently increased to 3-5%, significantly raising the repayment burden for borrowers.
According to Kyobo Securities, the scale of housing mortgages transitioning to variable rates this year is expected to reach approximately 50 trillion won. In its annual outlook report, Kyobo Securities analyzed that "approximately 20 trillion won worth of low-interest fixed loans will convert to variable rates every half-year, increasing the pressure on borrowers in terms of principal and interest repayments."
The temporary rebound in housing transactions earlier this year due to the temporary lifting of land transaction permission restrictions, followed by a renewed tightening of real estate-related regulations, is also cited as a reason for the increase in voluntary auctions.
The market forecasts that this phenomenon may deepen as the economic recession continues and loan regulations are tightened further. While the real estate market in Seoul may be relatively better than other regions, there are expectations that properties may emerge that cannot withstand the overall economic downturn.
Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, noted, "The average sale price rate (successful bid rate) in Seoul is higher than in other areas, so the situation is not bad; however, the number of auctions is continuously increasing," and added, "In July, the number of applications for voluntary auctions already approached the total for the entire year of 2023." He further remarked, "There is the variable of a base rate cut, but regulations such as the implementation of the three-tier debt service ratio (DSR) in the Seoul metropolitan area, along with overall loan limits, may lead to an increase in properties going to auction."