Last month in Seoul, the number of homes that went to auction because borrowers failed to repay their loans on time hit the lowest level of the year. The pace of interest rate cuts has been slower than expected, but after the Sept. 6 policy package was announced, home prices surged and transaction volume increased, making it easier to dispose of homes before they go to auction. Some analysts also said that as jeonse and monthly rent deposits have become more expensive than before, borrowers have more room to repay loans, reducing voluntary auction listings.
According to the Court Registry Information Plaza on the 7th, the number of collective buildings (apartments, officetels, etc.) in Seoul that applied for the registration of a decision to commence voluntary auction last month totaled 282. That was down 38.7% from the previous month (460 cases) and the lowest level this year.
A voluntary auction is when a creditor such as a financial institution puts up for auction an item set as collateral because the debtor fails to repay the debt.
In Seoul, all districts except three—Gangbuk, Gwangjin, and Geumcheon—saw declines in voluntary auction applications. The sharpest drop was in Dongjak District, which recorded 16 voluntary auctions, down 38 from the previous month. Next, Mapo District fell from 40 to 8 voluntary auction applications. The three Gangnam districts—Gangnam, Seocho, and Songpa—also saw decreases of 10, 5, and 20 voluntary auction applications, respectively.
This year, voluntary auctions in Seoul fluctuated between the 300s and 600s, including 687 cases in May. As the pace of interest rate cuts has not been fast and a series of regulations have cooled the real estate market, the burden of loan repayment has persisted, increasing the number of so-called "youngkkeun-jok" (those who leveraged everything to invest). As rates on mortgage loan products structured as "fixed for five years, then variable," which were executed around 2020, began to rise in earnest this year, voluntary auctions were expected to increase further.
However, last month, even though the lending rate on mortgage loans did not show a clear downward trend, voluntary auctions decreased. This appears to be due to the sharp rise in Seoul home prices after the Sept. 6 supply measures were announced. As dwelling prices rose and transaction activity picked up, it became possible to sell homes and repay debts before they went to auction. In addition, as jeonse prices rose or more cases shifted to monthly rent, borrowers' repayment capacity improved, which also contributed to fewer voluntary auction applications.
Lee Juhyeon, a senior researcher at GGAuction, said, "Most creditors who file for voluntary auctions are financial institutions such as banks, so a decline in voluntary auction applications means mortgage loans are being repaid well," adding, "Because rates are lower than in the past, defaults by debtors have decreased significantly."
Lee went on to say, "Rising home prices also affect voluntary auctions," explaining, "As dwelling sale prices have increased compared to before, even if the benefit of the term is lost, disposal on the sales market has become sufficiently feasible. As prices have risen above the amount secured by the maximum mortgage, sales have become possible, which can reduce the number of cases entering auction."
However, this decrease in voluntary auction applications may be temporary. The Oct. 15 measures designated all of Seoul as a land transaction permit zone and a regulated area, making transactions more difficult. Even within Seoul, while major areas still have demand for listings that are affordable and well located, in non-Han River belt areas, demand for sales has plunged, which could repeatedly increase voluntary auction applications.
Although the growth in voluntary auction applications in Seoul has eased, some expect that in the provinces the number of homes going to auction because loans cannot be repaid could continue to rise. Lee said, "While the apartment market in Seoul has improved compared to before, in the provinces, auctions are still expected to increase significantly."