[Ryu Taemin's Real Estate A to Z] 'Highly Popular' Auctioned Unsold Properties... How Affordable Are They?

Seoul Courts' Auction Failure Reduction Rate at 20%
Incheon and Gyeonggi at 30%... Only Anyang Branch at 20%
10% Reduction per Round for Auction Failures
Proceedings Halt if Price Drops to 50% of Initial Price

Seoul Southern District Court Auction Courtroom View (Photo by Asia Economy DB)

[Asia Economy Reporter Ryu Tae-min] Properties that failed to sell at court auctions are gaining popularity. This is because properties appraised last year, when concerns about housing prices peaking were raised, have recently gone to auction, leading to a perception that the appraised value of houses is set higher than buyers expect. As the housing sales market enters a downturn, bidders are flocking to relatively cheaper properties that failed to sell.

According to Gigi Auction, a court auction specialist company, more than two-thirds of the 17 apartments sold at auction in Seoul this month?11 properties (64.7%)?had failed to sell at least once. During the same period, 17 out of 20 properties sold in Incheon (85%) were previously unsold, and in Gyeonggi Province, 53 out of 72 apartments (73%) were properties that had failed to sell. However, since the rate of price reduction after a failed auction varies by court, buyers participating in auctions need to be cautious.

The price reduction rate after a failed auction refers to the percentage by which the minimum auction price decreases after one failed auction. For example, at the Seoul Central District Court, where the reduction rate is 20%, a property appraised at 1 billion KRW that fails to sell at the first auction will have a minimum auction price starting at 800 million KRW in the second auction. If it fails again at the second auction, the minimum price for the third auction will be 640 million KRW, which is 20% less than 800 million KRW.

By region, all courts in Seoul have a fixed reduction rate of 20%. In Busan, the Dongbu and Seobu branches have a 20% reduction rate, but the Busan District Court applies a 30% reduction. In the metropolitan area, both Incheon and Gyeonggi regions have a 30% reduction rate, except for the Anyang branch, which has a lower rate of 20%. Most regions have reduction rates set at either 20% or 30%, but the Gwangju, Mokpo, Suncheon, and Haenam branches apply a 30% reduction after the first failed auction and 20% for each subsequent auction. Since there is no limit to the number of failed auctions, the price can continue to decrease until the property is sold.

On the other hand, the reduction rate for failed public sales is different. For public sales conducted by the Korea Asset Management Corporation, the minimum price decreases by 10% from the initial sale price each time the property fails to sell. For example, if a property with an initial price of 1 billion KRW fails to sell at the first public sale, the minimum price for the second sale will be 900 million KRW, and if it fails again, the minimum price will be 800 million KRW, which is 20% less than the initial price. Additionally, if the price drops to 50% of the initial price, the public sale process is halted, and a new sale price is determined through negotiation.

Experts advise that thorough rights analysis is essential when purchasing properties that have failed to sell. Although properties that have failed multiple times are cheaper, they may have complicated rights issues or a higher likelihood of having to cover tenant payments.