"I'd rather pay off debt than hand over the house"... Auction Withdrawals Rise for Apartments in Gangnam 3 Districts [Report]

Six Apartment Auctions in Central Division 1 Withdrawn or Rescheduled
Twenty Bidders Compete for Acro River Park Unit
Number of Withdrawals Increases During Periods of Rising House Prices

"Eit! Everything has been changed"

On the morning of the 1st, about 20 minutes before the start of bidding, a crowd gathered at the auction courtroom of the Seoul Central District Court in Seocho-gu. Those checking the auction schedule grumbled. The sheets of paper posted on the bulletin board were stamped repeatedly with red seals, indicating 'schedule change' or 'withdrawal.' Among the 49 real estate properties scheduled for auction that day, 16 were either withdrawn or postponed.

As the expressions of the prospective bidders who had been waiting for this day twisted, the courtroom became even more chaotic when a court official stamped additional schedule change seals 10 minutes before the bidding started. Auction experts observed the string of cancellations and said, "This is a phenomenon that appears during a period of rising house prices. It is evidence that expectations for house prices have not diminished despite the expanded reimplementation of the Land Transaction Permission System (Toheoje)."

On the 1st, auction participants are looking at the bulletin board in the auction courtroom at the Seoul Seocho District Central District Court in Seocho-gu, Seoul. Photo by Lee Ji-eun

◆Only 1 out of 6 apartments auctioned... 20 people gathered at Acro River Park

The auction courtroom at the Central District Court, where properties located in the three Gangnam districts are auctioned, saw a significant increase in schedule changes or withdrawals compared to the previous month. On this day, only 1 out of 6 properties was auctioned as planned. Specifically, the Central 1 Division had scheduled auctions for one apartment in Gwanak-gu and five apartments in the three Gangnam districts. However, auctions for Lotte Apartment in Samseong-dong, Gangnam-gu (exclusive area 92㎡), Gaenari Raemian in Yeoksam-dong (85㎡), and Banpo Mido Apartment in Seocho-gu (42㎡, fractional sale) were withdrawn. The auction date for Shindonga Apartment in Nonhyeon (114㎡) was changed.

This is quite a different scene from last month. In the seven auctions held last month (combined Central 2, 3, 4, 7, 8, 9, and 21 Divisions), auctions were conducted for 31 apartments. Among them, only six had schedule changes, and none were withdrawn.

Even though auction schedules were being changed or canceled one after another, prospective bidders did not leave but instead filled the courtroom to capacity. The crowd was there to watch the auction of an 85㎡ unit at Acro River Park in Banpo-dong, Seocho-gu, which proceeded as scheduled. Twenty people bid on this property. When the number of bidders was announced along with the auction results, the courtroom erupted in exclamations.

This property was sold at 5,129,990,000 KRW, which is 29,990,000 KRW higher than the appraised value of 5.1 billion KRW. The winning bid rate was 101%. This price is lower than the actual transaction price in February (5.47 billion KRW). However, depending on the floor and whether there is a view of the Han River, the asking price (as of April) varies from a minimum of 4.6 billion KRW to a maximum of 5.5 billion KRW. Experts said, "The winning bid price cannot be considered low."

◆Auction withdrawals during rising house prices... Will auction listings in the three Gangnam districts dry up?

Experts analyzed that the depletion of auction properties and rising winning bid prices occur before house prices start to rise. A 'schedule change' in an auction is made when the debtor reaches an agreement with the creditor to repay the debt. A 'withdrawal' means the debtor repays the debt and cancels the auction. Typically, debtors choose this option when it is more advantageous to sell the property in the general real estate market rather than through auction to repay the debt.

Joo Hyun Lee, a senior researcher at Gigi Auction, said, "During periods of rising house prices and active transactions, homeowners can dispose of assets at desired prices in the sales market, so there are many cases where they request creditors for leniency to postpone the auction date. This is a typical phenomenon during a real estate upswing." Kang Eunhyun, director of the Myungdo Auction Research Institute at a law firm, said, "It is rare for the number of schedule changes and withdrawals to exceed double digits, as seen in the Central 1 Division on this day. When expectations for the market to rise increase, some try to buy time by changing the auction date."

View of apartment buildings in downtown Seoul from Inwangsan Mountain, Seoul. Photo by Yonhap News

Experts particularly evaluated that the expectation for rising house prices has not been dampened even after the government's re-designation of the Toheoje. Researcher Lee explained, "The market previously witnessed a rise in house prices after the Toheoje was lifted. Because there is an expectation that prices will rise again once regulations are lifted, investors hasten to purchase, and debtors show behaviors such as withdrawing auctions."

There are forecasts that auction listings will decrease mainly in the three Gangnam districts, and that winning bid prices will rise due to increased auction demand caused by the Toheoje. When purchasing an apartment in an area subject to the Toheoje, permission from the district mayor and a two-year residence obligation are imposed. However, auction properties are exempt from these regulations. Therefore, the winning bid prices of the few auction properties are expected to exceed market expectations. Researcher Lee predicted, "From the debtor's perspective, the longer they maintain ownership, the more profit they expect to gain, so they will choose to withdraw auctions. Bidders who want to avoid Toheoje regulations will increase, causing the winning bid rate to rise."