Recession Finally Takes Toll on Houses

Forty-eight-year-old Mr. Kim, who sells undergarments at a corner in a conventional market, is about to be forced out onto the streets just two years after buying a newly-built 32 pyong (1 pyong=3.306㎡) villa.

The problem stemmed from his attempt to become a homeowner. He received a loan of 100 million won at the end of 2001 to buy his own home after dreading about the soaring lease deposit. He was able to follow his 10-year payoff schedule on the loan from undergarment sales, but it became difficult to keep up from the end of last year because of the recession. He finally received a notification from the bank in June that his villa would be put up for an auction.

In August, over 40,000 units, the largest number of items in 38 months, were put on auction as more and more tenement houses and multi-complex residences owned and occupied by masses such as Mr. Kim were auctioned. This means that the larger part of the populace is losing their homes, their last stronghold for survival, because of the prolonged recession.

According to Digital Taein, an auction information provider, 40,801 items were up for bid at court-initiated auctions, surpassing the 40,000-level for the first time since June 2001 (4,600 items).

Among them, tenement houses and multi-complexes accounted for the largest portion of 26.6 percent with 10,839 cases. The number is 2.4 times the figure in August 2003 with 4,479 items, and 4.3 times the 2,459 items auctioned in August 2002.

In terms of locations, 4,474 items came from Incheon, which comprises 41.2 percent of total tenements and multi-complexes auctioned in August.

The volume of auctioned tenements and multi-complexes now surpasses apartment items since May, which used to account for the largest portion of all auctioned items.

Accordingly, the toll of real estate items auctioned across the nation from January to August 2004 reached 292,000, which is up by 44.6 percent from last year’s total of 202,000. At this rate, the total number of items auctioned this year will reach 400,000, which is nearly 74 percent of 544,000, the number of items auctioned in 2000 when the items poured out in the wake of the financial crisis.

As more items become available, the bid-price ratio (the ratio of highest bid over appraisal) is also dropping. This indicates that there is a high chance that the seller will still be left with remnant debt after auctioning off the house.

The tenants will be dealt with a different sort of damage as their deposits will not be returned.

Lee Young-jin, a department manager at Digital Taein, said, “The bid-price ratio of tenements and multi-complexes, which were usually maintained at 70 to 80 percent, fell to 61.22 percent in August,” and added, “So, there is almost no chance of getting back the deposit in full, except for the creditors in higher priority order than the banks.”

Jin-Suk Huh jameshuh@donga.com