Due to Falling House Prices... Increase in Seoul Villa Auctions with Deposits Exceeding Appraised Value

A view of the villa neighborhood from a building in Yangcheon-gu, Seoul, where villa transaction volumes are increasing. Photo by Moon Honam munonam@

[Asia Economy Reporters Minyoung Kim and Taemin Ryu] As the decline in jeonse prices and sale prices in the Seoul area accelerates, cases where tenant deposits exceed the appraised value among villas in Seoul filed for auction are rapidly increasing. This means that even if the villa is disposed of through auction, the tenant's deposit cannot be compensated, confirming the spread of reverse jeonse and "Kkangtong" housing due to the housing market downturn in the auction market as well.

On the 15th, Asia Economy requested data from Gigi Auction and found that the number of auction cases in Seoul villas where the tenant's lease deposit exceeded the appraised value increased from 58 cases in 2020 to 94 cases in 2021, and further rose by 50% to 141 cases as of December 13 this year compared to last year. Looking at the monthly number of cases over the past three years, December this year recorded the highest with 40 cases. The fact that the lease deposit is higher than the appraised value means that the deposit is more expensive than the appraised value set in the auction, indicating that even if the property is disposed of, the tenant's deposit cannot be fully refunded.

Since the jeonse deposit is higher than or forms a price equivalent to the appraised value, this leads to a continuous failure to sell at auction. Ultimately, the tenant is forced to purchase the property reluctantly. According to Gigi Auction, the average winning bid rate for Seoul villas from January to November this year was 20.06%. The winning bid rate has been declining in the second half of this year: 12.70% in September, 12.00% in October, and only 10.00% in November. Typically, each failed auction reduces the minimum bid price by 20-30%, so the deposit amount the tenant can recover decreases with repeated failures or may become impossible to recover altogether.

Senior Researcher Juhyun Lee said, "If multiple auction failures continue, tenants who risk losing their deposits or having their cases dismissed end up purchasing the property. Since this is a purchase at a price higher than the market value, the tenant inevitably suffers a loss."

The situation is severe even for houses where the jeonse deposit is 80% or more of the market price, which is the standard for "Kkangtong Jeonse." For example, Villa A in Hwagok-dong, Gangseo-gu, Seoul, has an appraised value of 214 million KRW and a deposit of 180 million KRW (about 84% of the appraised value), but it has been auctioned unsuccessfully up to the 8th round. The minimum bid price for the 9th auction scheduled on the 21st has dropped to 35.9 million KRW.

The reason for the increasing cases where deposits exceed the appraised value seems to be the rise of "Kkangtong Jeonse." If an investor hastily buys a villa where the jeonse price exceeds the sale price and rents it out, but the housing price continues to decline, the villa immediately becomes a "Kkangtong Jeonse" property. Investors who bought with jeonse must find new tenants and return deposits, but if jeonse prices fall, they cannot refund the deposits received at previous market prices. As this situation accumulates, the number of "Kkangtong" villas entering the auction market increases.

In fact, the number of tenants applying for forced auctions because landlords do not return deposits is increasing. According to Gigi Auction, from January to October this year, the total number of forced auction cases filed by tenants and the Korea Housing & Urban Guarantee Corporation (HUG) nationwide was 393. Considering that there were 397 cases last year, the number of forced auctions this year is likely to exceed last year's level.

This content was produced with the assistance of AI translation services.