Wave of House, Commercial, and Factory Auctions... Q1 Applications Hit 13-Year High

The number of real estate properties that entered court auction due to unpaid debt in the first quarter of this year reached its highest level in 13 years.

According to court auction statistics and Law Firm Myeongdo on April 27, a total of 30,541 new properties were filed for auction with the courts in the first quarter. This is the largest number for a first quarter since 2013, when it stood at 30,939 cases.

Auction filings are initiated by creditors who request the court to sell collateralized real estate in order to recover their loans. This figure is considered a more immediate indicator of the real estate market situation than the "number of ongoing auctions," which also includes properties that have already been put up for auction and failed to sell multiple times.

Auction filings have been steadily increasing in recent years. In 2023, the number exceeded 100,000 for the first time since 2014, and this upward trend continued in 2024 with 119,312 cases and 121,261 cases last year. The number of new auction properties last year was the highest since 2009, immediately after the global financial crisis. Analysts point to the slow post-pandemic economic recovery and the delayed impact of interest rate hikes and tighter lending regulations since the second half of 2021, which are now being reflected in the auction market.

A real estate agency in downtown Seoul. Photo by Yonhap News

원본보기 아이콘

There was a sharp increase in residential property auctions. According to GGI Auction, the number of ongoing residential facility auctions last year was 108,742, more than double the number in 2021, before the impact of interest rate hikes fully set in. This year, from January through the end of April (including scheduled auctions), the figure surpassed 40,000, which is more than 10,000 higher than the same period last year.

In April 2024 alone, there were 12,426 ongoing residential facility auctions, the highest in about 19 years. Multi-family and row houses, where many working-class people reside, suffered significant losses. The combination of lease fraud issues and stricter lending regulations resulted in many homeowners being unable to manage their debt, which led to a surge of such homes entering the auction market.

During the same period, more than 70% of residential auctions (8,973 cases) involved non-apartment housing such as villas, while apartments accounted for less than 30% of the cases.

For apartments, the proportion of auctioned properties remains relatively small, and successful bids tend to be comparatively higher, especially in popular areas.

The number of retail shops and factories closing down is also rising. This is due to increased loan interest burdens from high interest rates, economic downturn, and the expansion of online shopping, which is shrinking offline commercial districts and increasing retail vacancy rates.

With vacant retail spaces on the rise due to increased online shopping, auction filings for retail and office properties reached about 70,000 last year, up 43% from a year earlier. This April, the figure hit a record 8,252 cases. The auction success rate for retail properties remains in the 10-20% range, leading to a buildup of unsold properties. In one actual case, a building in Daechi-dong, Gangnam-gu was listed for auction at an appraised value of approximately 9.8 billion won, but after two failed auctions, the minimum price dropped to about 6.3 billion won. Factory auctions also reached an all-time high this month, with 1,222 cases.

원본보기 아이콘

Experts believe the increase in auction properties is likely to continue for some time. The slow pace of interest rate cuts and the lack of a clear recovery in the real economy are the main reasons.

The overall real estate market is expected to remain frozen, with demand becoming even more concentrated in a small number of popular apartments.

To handle the surge in auction properties, courts nationwide have increased the number of departments in charge of auctions to 413 this year, about 100 more than last year.

Kang Eunhyeon, head of the Auction Research Institute at Law Firm Myeongdo, said, "Given the trend of auction properties flooding the market since the beginning of this year, the total number of new filings could surpass last year’s 120,000 cases and reach levels seen during the financial crisis in 2009." Kang added, "With the overall real estate market in a slump, demand is likely to become even more polarized, focused only on a select few popular apartments."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.