21,444 Forced Auctions in the Seoul Metropolitan Area in May, Increasing for 13 Consecutive Months
Voluntary Auctions Also Rising, More Homeowners Unable to Repay Loans Due to High Interest Rates
"Forced and Voluntary Auctions Increasing Sequentially Amid Falling House Prices"
Last month, the number of forced auctions in the Seoul metropolitan area reached an all-time high. These were properties that had entered the auction process due to reverse jeonse (a phenomenon where the jeonse market price is lower than the contract price) and jeonse fraud incidents following the housing price decline at the end of 2022. Properties under voluntary auctions, where homeowners struggled to repay real estate loans due to high interest rates, also showed an increasing trend for 24 consecutive months. It is expected that the number of properties pushed into court auctions due to the economic downturn will continue to rise.
According to the Court Registry Information Plaza on the 11th, the number of valid forced auction registrations for collective buildings in the metropolitan area last month was recorded at 21,444 cases. This surpassed 20,000 cases for the first time in April (20,069 cases) and set a new record once again. Compared to a year ago (14,186 cases), this represents a 51.2% (7,258 cases) increase. This figure has been on the rise for 13 consecutive months since April last year (13,765 cases).
Forced auction refers to the procedure where the court seizes and forcibly sells real estate when a creditor (tenant) does not receive the owed amount (jeonse deposit) by the promised date. At the end of 2022, as housing prices fell below the jeonse deposit, more homeowners were unable to return the deposits, prompting tenants to apply for forced auctions to recover their money. Recently, these cases have flooded the court auctions.
By region, Seoul recorded the highest number with 8,094 cases. This indicates the significant impact of housing price declines and jeonse fraud in Seoul. Gyeonggi followed with 8,064 cases, and Incheon with 5,286 cases.
Voluntary auctions are also on the rise. Last month, the number of valid voluntary auction registrations in the metropolitan area reached 25,635 cases, marking a record high. This is a 59.9% increase compared to May last year (16,034 cases) and has been increasing for 24 consecutive months since May 2022 (10,741 cases). Gyeonggi had the highest number with 14,331 cases, followed by Seoul (6,071 cases) and Incheon (5,233 cases).
Voluntary auction is a compulsory execution procedure where a creditor holding collateral rights such as a mortgage or jeonse right auctions off the collateral property to recover the debt when the debtor fails to repay the loan. Most creditors here are banks or financial institutions. The increase in voluntary auctions is attributed to the rise in benchmark interest rates, which caused real estate-related loan interest rates, including mortgage loans, to soar, leading to more debtors unable to repay principal and interest.
Lee Joo-hyun, a senior researcher at Gigi Auction, explained, "The rise in interest rates caused apartment prices to fall, which in turn affected villa prices, exacerbating the reverse jeonse and ‘empty shell jeonse’ crises, leading to more court auctions. Voluntary and forced auctions are increasing in a chain reaction."
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