Seoul Luxury Home Auctions Over 1.5 Billion Won: A 'Cash-Rich' Celebration

Reduced Competition Due to Loan Regulations... 'Choyoksekwon' Sold at Low Prices
High-End Housing Auctions Thrive Despite Property Tax Hikes... Investment Opportunities Sought

(Photo by Yonhap News)

[Asia Economy Reporter Moon Jiwon] Amid the housing market contraction caused by the government's December 16 real estate measures last year, signs are emerging that the high-end housing auction market is becoming a playground for only a few cash-rich buyers. With loans for houses exceeding 1.5 billion KRW completely banned, many investors who had previously jumped into auctions leveraging loans are withdrawing from the market. As expectations spread that properties can be won at auction "without bubbles," analysts suggest the market will be reorganized mainly around wealthy individuals with sufficient cash liquidity.

On the 23rd, Asia Economy analyzed this month's auction bids in the Seoul area by Gigi Auction, a court auction specialist company, and found that 3 out of 9 apartments priced over 1.5 billion KRW found new owners. Typically, ultra-high-end houses tend to attract many bids after one failed auction, and considering some of this month's listings involved complex rights analysis such as retention rights and senior leasehold rights, experts say the winning bid rate is not bad.

At an auction held the previous day at the Seoul Central District Court, a 163㎡ Tower Palace apartment in Dogok-dong, Gangnam-gu (exclusive area) was sold for 2.05 billion KRW above the appraised value of 2 billion KRW, at 2.205 billion KRW (winning bid rate 110%). Although the property exceeds 1.5 billion KRW and mortgage loans are not available even after ownership transfer, eight bidders participated. It is believed that the high recognition of this luxury residential-commercial complex in Gangnam attracted many bidders despite it being the first auction.

Om Myungwon, a researcher at Gigi Auction, said, "Since the December 16 real estate measures, we have frequently seen high-end apartments being sold immediately without failed auctions, unlike before. With loans blocked and many competitors dropping out, many buyers see this as an opportunity to win good properties without bubbles." Before the government measures, even buyers with insufficient funds borrowed loans to participate in high-end housing auctions, but recently, the market has become one where only cash-rich buyers are active.

In this atmosphere, cases of winning high-end houses in prime Seoul locations at relatively low prices are also emerging.

On the 21st, only two bidders participated in the auction for a 142㎡ apartment in Seogyo-dong, Mapo-gu, Mesena Polis, which was sold to a new owner at 1.501 billion KRW, more than 200 million KRW below the appraised value of 1.73 billion KRW. This winning bid was about 13% lower than the appraisal price. The current market price for this apartment, based on the upper floors, is around 1.8 to 1.95 billion KRW. The 162㎡ Yongsan Park Xi in Yongsan-gu was also auctioned on the 7th with two bidders, selling at 1.701 billion KRW. Although this was higher than the appraised value of 1.59 billion KRW set in December 2018, it was about 80 million KRW lower than the most recent actual transaction price from November last year.

Despite the significant increase in holding tax burdens on high-end houses due to the rise in comprehensive real estate tax rates and the realization of official property prices, steady bidding continues in high-end housing auctions. This is interpreted as reflecting buyers' expectations that properties in good locations such as Gangnam still have high potential for price appreciation. In fact, this year, owning just one apartment worth 1.6 billion KRW in Mapo-gu means paying around 3.68 million KRW in holding taxes, about 50% more than last year.

Researcher Om said, "Those who win bids for houses over 1.5 billion KRW will face considerable property and comprehensive real estate tax burdens this year, but they are evaluating that the future value increase of the properties will be higher. The industry expects that the auction market's popularity will continue, as properties with good rights analysis almost always sell once listed."