Reconstruction Complexes Consecutively Failing at Auction Amid Transaction Freeze
Contrasting Last Year's Hot Housing Market
Over Two-Thirds of Seoul Apartment Auctioned Units Fail
[Asia Economy Reporter Ryu Taemin] Recently, even reconstruction apartments are consecutively failing to attract bids in court auctions. As the overall housing market cools down, even reconstruction project complexes, which were popular among buyers due to their high investment value, are being ignored by bidders. Additionally, with the increased burden of financing due to the total debt service ratio (DSR) regulations applied this year, buyers are also cautious about placing bids.
According to Gigi Auction, a specialized court auction company, on the 23rd at the Seoul Northern District Court Auction Division 5, units in Nowon-gu Sanggye Jugong Complex 10 (59㎡ exclusive area) and Complex 11 (58㎡) were sold to new owners. Their winning bid prices were 615.97 million KRW and 601.99 million KRW respectively, with bid-to-appraisal ratios of only 78% and 75%. The bid-to-appraisal ratio refers to the ratio of the winning bid price to the appraised value; for example, a ratio of 78% means an apartment appraised at 100 million KRW was sold for 78 million KRW. These properties had failed to attract bidders twice in auctions held in June and July.
This contrasts with last year when the housing market was hot. For instance, in February last year, a 46㎡ unit in Sanggye Jugong Complex 14, auctioned off, attracted 46 bidders and was sold for 481 million KRW. This was 222.6 million KRW higher than the appraised value, resulting in a bid-to-appraisal ratio soaring to 189%.
Nowon-gu Sanggye Jugong is not the only reconstruction complex experiencing initial auction failures. A 99㎡ unit in Jamsil-dong, Songpa-gu, Asia Athlete Village failed to attract bidders in June and was auctioned successfully on the 8th of this month. Similarly, an 84㎡ unit in Mokdong New Town Complex 14 in Sinjeong-dong, Yangcheon-gu, also failed to find a buyer in its initial auction in July.
The surge in failed bids for reconstruction complex properties is interpreted as a growing perception that the appraised values are set higher than buyers’ expectations amid the ongoing housing price decline. The lower bid-to-appraisal ratios are because appraisals for auctioned apartments are typically conducted 6 months to a year before the auction starts, and the appraisal period coincided with last year when housing prices peaked. Furthermore, the government’s housing supply plan announced on the 16th, which postponed concrete implementation plans regarding the Reconstruction Excess Profit Recovery System (Jaechohwan) and safety inspections related to redevelopment projects, also seems to have affected the preference for reconstruction complexes.
In Seoul court auctions, the minimum auction price decreases by 20% each time a property fails to sell. For example, if a property appraised at 1 billion KRW fails in the initial auction, the minimum price for the second auction starts at 800 million KRW, and if it fails again, the third auction’s minimum price is reduced by 20% of 800 million KRW, making it 640 million KRW. In fact, among 17 apartments sold in Seoul last month, more than two-thirds (11 units, 64.7%) had failed at least once before being sold.
The number of bidders is also rapidly decreasing. The average number of bidders for Seoul apartment auctions last month was 3.0, the third-lowest figure since Gigi Auction began compiling statistics in 2001, and less than half compared to January this year (6.35). Senior researcher Lee Joo-hyun of Gigi Auction explained, "Because loan regulations apply equally to auction properties, buyers seem to feel a burden in financing," adding, "With consecutive base rate hikes and the application of DSR regulations, the auction market is also showing signs of slowing down."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
