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Jeonse fraud-hit social housing ultimately heads to auction… SH direct management also delayed

[비즈한국] Social housing that was affected by jeonse fraud has appeared on the auction market. According to Bizhankook’s reporting, the social housing in Jangwi-dong, Seongbuk-gu, which the Seoul Housing & Communities Corporation (SH) had planned to purchase, entered full-scale auction proceedings following the court’s allocation last December. Concerns are rising that the SH acquisition process may be delayed as the troubled property goes to auction. This social housing is a land-lease type, where the SH Corporation owns the land and private developers build and operate the buildings.

Following a series of deposit non-refund incidents in Seoul’s social housing units, the Seoul Metropolitan Government announced countermeasures last August. The plan is for the city to provide advance deposit payments to tenants, after which SH would purchase the problematic social housing to transition it into a 'directly managed' operation system. The plan includes terminating consignment contracts with social housing operators and exercising the right to indemnity to recover losses.

However, Bizhankook’s investigation confirmed that the Jangwi-dong social housing, where jeonse fraud occurred, was sent to auction before SH could purchase it. An involuntary auction was decided upon last September at the request of the Korea Housing & Urban Guarantee Corporation (HUG). The auction process was not halted, and the case was assigned to a judicial panel in December. HUG had established a mortgage of 372 million KRW on the social housing building in 2020. The auction claim amount is approximately 300 million KRW. Local credit unions and tax offices have also placed provisional seizures and attachments on the building.

SH plans to participate in the auction to win the bid for this social housing. While it is unlikely that anyone other than SH will win the bid, it is not theoretically impossible. As the social housing goes to auction, the timeline for transitioning to SH direct management is expected to be delayed.

SH has been paying deposits in advance to tenants who left after being unable to receive their deposits from the operators. No new tenants were recruited for the vacated units. Some of the currently residing tenants have also expressed their intention to leave. Tenant A stated, "We were told that SH would transition to direct management only after they win the bid for the building at auction. Since it will take some time until then, there are many tenants who currently want to move out. Those who are leaving have already received the full deposit from SH."

Regarding the timing of the transition to direct management, an SH official stated, "We are pursuing purchases according to the situation of each project site."

It appears it will take some time until Seoul's social housing units are 'operating normally.' The Seoul Metropolitan Government suspended additional supply of social housing in October 2022. Since then, it has not announced any specific plans regarding the operation of social housing.

In the industry, there were expectations that social housing would be revitalized following the election of President Lee Jae-myung. During his time as Gyeonggi Governor in 2020, President Lee proposed 'social housing' as a solution to real estate problems. At the time, Gyeonggi Province held a conference for 'Gyeonggi-style social housing revitalization,' where President Lee remarked, "If we supply ultra-long-term public rental housing where people can live without necessarily buying a home, such as social housing, and high-quality housing in good locations that the middle class can afford, people can live comfortably without buying expensive houses."

Recently, there was talk that the government was pushing for the revitalization of cooperative-type social housing. However, it is understood that there is no discussion regarding land-lease type social housing, where the public owns the land and private entities build the structures.

Land-lease social housing is also having difficulty signing up for deposit guarantee insurance. Initially, SH intended to mandate that social housing operators purchase insurance within two years, conditioned on a 'purchase commitment.'

An industry insider pointed out, "Under current circumstances, the debt ratio of social housing is high, so even if SH writes a purchase commitment during operation, it is unlikely that HUG will approve the insurance coverage. Because deposit guarantee insurance must be renewed annually, it is impossible to enroll unless HUG’s standards change. This is why people are saying the deposit guarantee insurance system needs to be reformed."