Despite Borrowing to the Limit, Tears Follow as Apartments Go to Auction Due to Unpaid Loans

The number of properties going to auction due to unpaid loans is on the rise. Notably

The number of properties going to auction due to unpaid loans is on the rise. Notably, the number of collective buildings, including apartments, being subjected to compulsory auctions has reached its highest in 13 years and 8 months.

According to data from the Court Registration Information Plaza, there were a total of 13,631 applications for compulsory auction decisions in July. This marks a 24.1% increase compared to the previous month (10,983 applications) and a 46.1% increase compared to the same period last year (9,328 applications).

A compulsory auction refers to the process where a creditor takes a property to auction if a debtor fails to repay the principal or interest on a loan secured by that property. Unlike regular court proceedings, a creditor can directly apply for an auction at the court. This typically occurs when financial institutions such as banks are the creditors.

The real estate industry suggests that the increase in compulsory auction applications is due to borrowers, often referred to as the 'maxed-out buyers', struggling to repay high-interest loans and principal amounts, leading to more auction cases.

The rise in compulsory auctions is most prominent in collective buildings like apartments and officetels.

In July, the number of compulsory auction applications for collective buildings reached 5,484, marking a 54.6% increase from 3,547 applications in the same month last year. This is the highest number of applications since November 2010 (5,717 cases), the most significant increase in 13 years and 8 months.

Regionally, Gyeonggi Province had the highest number of cases with 1,639. This was followed by Busan with 759 cases and Seoul with 639 cases. In Gyeonggi Province, 129 applications were submitted from the Gwonsun-gu area in Suwon, which has seen numerous cases of rental fraud. In Seoul, the majority of applications came from Guro-gu, with 195 cases.

The surge in compulsory auctions reflects the broader struggles in the real estate market, where high-interest rates and substantial loan repayments are pushing many borrowers to default, leading to an increase in property auctions.