Auction Submissions Also Rebound... Yeongkkeuljok Losing Sleep During Interest Rate Hikes

On the 18th of last month, a banner advertising mortgage loans was displayed in front of a bank in Seoul. The banking sector expects the Bank of Korea to raise the base interest rate to at least 2.00% by the end of the year, which would push the upper limit of loan interest rates into the 7% range.

The recent increase in auction properties, after a decline at the end of last year, reflects the growing financial burden on gap investors and others due to interest rate hikes and loan regulations. The United States recently raised its benchmark interest rate by 0.5 percentage points for the first time in 22 years and has indicated several more 'big steps' (0.5 percentage point increases) ahead. Reflecting this atmosphere, the number of auction properties, which had been decreasing since the end of last year, reversed to an upward trend within three months.

According to the Korean Court Auction Information website on the 6th, the number of court auction cases filed nationwide in March was 6,477, a sharp increase of 19.55% compared to the previous month (5,418 cases). The number of court auction filings had been declining since December last year but turned upward after three months.

The number of court auction filings refers to cases where an auction application has been submitted to the relevant district court. Since it takes more than six months from appraisal to actual bidding, this figure provides a relatively quicker indication of the current economic trend compared to the 'ongoing cases' based on actual bids. Court auction filings include real estate such as houses, land, commercial buildings, factories, and vehicles, as well as movable property, with houses typically accounting for the largest share.

In Seoul, the increase in auction filings was particularly notable in areas where aggressive buying by the 2030 generation, known as 'Youngkkeul' (pulling together all resources), had been concentrated until last year. The Seoul Southern District Court, which covers Gangseo, Guro, and Geumcheon districts, saw filings rise from 152 cases in February to 235 cases in March, a 54.6% increase. The Seoul Northern District Court, covering Nowon, Dobong, and Gangbuk districts, also saw an 11.63% increase from 129 to 144 cases during the same period.

Especially, Nowon, Dobong, and Gangbuk?collectively known as 'Nodogang'?have seen significant house price increases over the past two years. These areas are densely populated with apartments priced under 900 million KRW, attracting concentrated Youngkkeul efforts from the relatively financially constrained 2030 generation. In Nowon District, the 2030 generation accounted for 49.3% of total purchases last year, indicating strong demand from this age group.

The increase in auction filings is attributed to rising interest rates alongside increased household loans. Shin Tae-su, CEO of the real estate development information platform Jijon, said, "An increase in auction filings means many cases are going to auction because borrowers cannot repay their loans," adding, "This can be seen as a sign of market stagnation." He further explained, "Especially, the 2030 generation who rushed to buy homes with Youngkkeul and marginal self-employed borrowers barely surviving under low interest rates may no longer withstand the rate hikes, pushing their properties into the auction market."

A real estate auction industry insider said, "Once a property goes to auction, it often sells for less than half its market value or even less," emphasizing, "It is crucial to avoid loan defaults and situations leading to auctions." Experts advise a conservative approach in the current environment of steep interest rate hikes, such as increasing the equity ratio as much as possible. Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, said, "It is better to avoid loans where the principal and interest repayment exceed 30% of your monthly salary or where the loan amount exceeds 30% of the house price," adding, "For those already heavily indebted, active debt downsizing is necessary."