Loan Regulations Drive Up Jeonse Renewals... 'Compulsory Auctions' Drop Sharply [Real Estate AtoZ]

Number of Applications Down 15.9% Last Month
Metropolitan Area Sees Sharp 20.6% Decline
Loan Regulations Lead to Jeonse Contract Renewals
Decreased Jeonse Supply Drives Deposits Even Higher

A panoramic view of apartment complexes in downtown Seoul as seen from Namsan, Seoul

"I gave up looking for a new jeonse apartment. There are simply no listings available."

Recently, the number of properties entering court-ordered auctions due to landlords being unable to return jeonse deposits has dropped significantly. This decline is particularly pronounced in the Seoul metropolitan area. As a series of real estate policies have made it more difficult to purchase a home or secure a new jeonse contract elsewhere, the number of compulsory auctions has also decreased.

According to the Court Registration Information Plaza on the 13th, the number of applications for court-ordered auction initiation for collective buildings (such as officetels, apartments, multiplex housing, and multi-family housing) nationwide totaled 2,864 last month. This represents a 15.9% decrease compared to the previous month's 3,406 cases.

The number of auction applications in the Seoul metropolitan area dropped sharply. Last month, Seoul, Incheon, and Gyeonggi Province recorded 1,997 applications, a 20.6% decrease from the previous month. In particular, Incheon saw the largest decline, dropping from 626 to 376 cases, a 39.9% decrease compared to the previous month. Seoul also experienced a 17.5% decrease, which is a larger drop than the national average. In contrast, areas outside the metropolitan region saw only a slight decrease, from 892 cases in September to 867 last month, a 2.8% reduction.

The government's successive real estate policies have led to a decrease in the number of compulsory auctions. Each time a new policy was introduced, the limit on mortgage loans was reduced, causing more people to give up on buying a home and remain in their current jeonse apartments. As a result, fewer landlords are required to return deposits, and fewer properties end up in auction due to a lack of deposit funds. Last month, among the 3,134 jeonse contracts for multiplex and multi-family housing in Seoul, the proportion of contract renewals reached 41.1%, up 2.3 percentage points from 38.8% the previous month.

With gap investment blocked, there is now a shortage of jeonse properties, and prices have risen, making it difficult to switch to a new jeonse contract. Even if tenants try to find a new jeonse elsewhere, they must set a higher deposit than the previous tenant, which means landlords are less likely to be unable to return the deposit to existing tenants. In areas designated as Land Transaction Permit Zones, there is a residency requirement for those who purchase a home, making gap investment impossible. Gangnam’s three districts and Yongsan District were designated as permit zones under the June 27 measures, while all of Seoul and key areas in Gyeonggi Province were included under the October 15 measures.

According to the Korea Real Estate Board’s nationwide housing price trend survey, the cumulative change in the comprehensive jeonse price index for the Seoul metropolitan area was 0.31% through June this year. However, since the current administration’s real estate policies began in earnest in July, the rate of jeonse price increases accelerated, with the cumulative change reaching 0.67% by September, as published in the latest statistics-a 0.34 percentage point increase in just three months.

As recently as July, the number of applications for compulsory auction initiation in the metropolitan area reached 3,582, the highest since related statistics began in 2010. Unlike Seoul, the rise in jeonse prices in Gyeonggi and Incheon was limited, so many landlords were unable to return deposits. However, as stricter lending regulations pushed jeonse prices higher, the previously surging number of auctions began to decline.

Yoon Sumin, real estate specialist at NH Nonghyup Bank, explained, "Recently, jeonse deposits have been rising continuously, and conditions suggest they may continue to increase, so the likelihood of compulsory auctions caused by reverse jeonse is decreasing." He added, "With jeonse supply shrinking and demand remaining steady, the current jeonse market favors landlords."