[Real Estate AtoZ] Land Transaction Permits and Reconstruction Properties... Any Issues with Auction Winning?

The housing auction market, which had been neglected for some time, is recently gaining popularity again. This is because properties put up for auction have repeatedly failed to sell, causing bid prices to drop significantly. In particular, there is growing market interest as the perception that acquiring housing through auctions is relatively cheaper than subscription or purchase grows. However, bidders are increasingly concerned about whether there are any issues with winning auctions for properties located in land transaction permission zones or those undergoing active reconstruction projects.

What Exactly Is a Land Transaction Permission Zone?

A land transaction permission zone is a regulation that allows land and housing transactions only for actual use purposes in areas where speculative trading is likely to be rampant. Transactions exceeding 6㎡ in residential areas and 15㎡ in commercial areas require permission from the local government. Contracts made without permission are invalid, and violators face imprisonment of up to two years or fines up to 30% of the land price.

As of this date, about 9.2% of Seoul’s total area, approximately 55.99㎢, is designated as land transaction permission zones. Among these, 4.57㎢ around major reconstruction complexes such as Yangcheon, Gangnam, and Yeongdeungpo were designated on April 26 this year, and 14.4㎢ around the International Exchange Complex areas including Samseong, Cheongdam, Daechi, and Jamsil had their designation period end on June 22 this year, drawing attention to whether the land transaction permission zones will be extended.

If these areas are re-designated as land transaction permission zones, interest in auction properties in these regions is expected to increase further. While purchasing real estate in these areas requires land transaction permission, auctioned properties are exempt from obtaining separate local government transaction permission under the exception clause of the Civil Execution Act.

Additionally, acquiring an apartment through auction exempts bidders from the obligation to submit a funding plan, which attracts more interest. Unlike regular sales where a two-year residence obligation makes gap investment (buying with a lease gap) impossible, gap investment is possible when acquiring through auction. Moreover, there is no mandatory holding period, allowing immediate ownership transfer, which is considered a strong advantage.

In fact, according to Gigi Auction, a specialized court auction company, even at the end of last year when interest in auctions waned due to falling house prices, 19 bidders competed fiercely for a 101㎡ unit in Mokdong New Town 7 Complex, Yangcheon-gu. On the 15th of last month, eight bidders competed for a 144㎡ property in Apgujeong-dong, Gangnam-gu, achieving a winning bid rate of 94%.

Can Winning Auctioned Properties in Reconstruction Complexes Transfer Association Membership?

In principle, in reconstruction complexes within speculative overheating zones, even if real estate is transferred after the association establishment approval, the association membership cannot be inherited. Only under certain exceptional conditions is this allowed. Association membership can be transferred only for properties held by a single household with one home for more than 10 years and occupied for more than 5 years. Additionally, if construction is not completed within three years after groundbreaking, resale is permitted only for those who have held the property for more than three years.

However, in auctions, whether membership transfer is possible depends on the property. If an individual placed the property in auction due to private debt, winning the auction does not grant the right to receive the pre-sale rights. For example, in December last year, an 84㎡ unit in Eunma Apartment was auctioned because the owner failed to repay a loan from a private lending company, but it failed to sell due to lack of bidders. The property was shunned because private lending companies are not financial institutions, making association membership transfer impossible. As of January, following government deregulation policies, only the three Gangnam districts of Seoul (Seocho, Gangnam, Songpa) and Yongsan-gu remain designated as speculative overheating zones and regulated areas.

However, there is an exception. Auctioned properties arising from unpaid debts to financial institutions allow the winning bidder to inherit association membership regardless of the project’s progress. Similarly, in the case of public auctions due to unpaid national taxes, association membership transfer is possible even after the association is established, allowing the winning bidder to receive pre-sale rights.