[Real Estate Strategies] 2021 Deja Vu Is an Illusion... "Single Smart Apartment" Craze Hits Auctions Too

Seoul Auction Price Rate Nears 100%
Gangnam 3 Districts' Auction Success Rate Falls Below 50%
Prime Properties Selectively Auctioned at High Prices
Property Analysis More Important Than Competitive Bidding

#Last month, 55 bidders participated in the auction for an 85㎡ exclusive unit at Mapo Xi Phase 2 held at the court. Due to the large number of bidders, the apartment was sold for 2,153,330,000 won, which is about 503,330,000 won higher than the appraised value of 1,650,000,000 won. The auction success rate (the ratio of the winning bid to the appraised value) reached 130.9%.

#In April, a 60㎡ exclusive unit at Doosan Apartment in Bukahyeon-dong was sold at auction for 853,000,000 won, which is 23,000,000 won higher than the appraised value of 830,000,000 won. After failing to sell at auction in March, the minimum bid price dropped to 80% of the appraised value (664,000,000 won). At the second auction, as many as 40 bidders participated. The auction success rate reached 102.77%.

Recently, a trend for a "single smart apartment" is sweeping the Seoul apartment auction market. Photo by Yonhap News

Recently, a trend for a "single smart apartment" is sweeping the Seoul apartment auction market. Although the overall auction success rate remains low, demand is concentrated only on high-value properties with strong investment potential, pushing the auction success rate to its highest level in three years. Unlike in 2021, when every property put up for auction was immediately sold, currently, only select complexes with proven investment value are being successfully auctioned off.

According to GGI Auction on June 25, the auction success rate for Seoul apartments last month was 97.7%. This is the highest figure in three years since June 2021 (119.0%). A success rate above 100% means that the property was sold for more than its initial appraised value.

The upward trend in auction success rates is spreading throughout Seoul. In Gangnam 3 Districts (Gangnam, Seocho, Songpa), where high-priced apartments are concentrated, the auction success rate last month was 100.1%. The Gangnam 3 Districts have maintained a success rate above 100% for three consecutive months. In the "Nodogang" area (Nowon, Dobong, Gangbuk), last month's auction success rate was 89.90%. After standing at only 78.20% in January last year, the rate soared to 89.5% by December and has remained in the 90% range for two consecutive months since March.

Concerns Over a Repeat of the 2021 Overheated Market... But Auction Success Rate Remains Low

Some observers are concerned that the overheated auction market of 2021 is being repeated. In June of that year, the auction success rate for Seoul apartments hit 119.0%, the highest since GGI Auction began compiling related statistics in 2001. In May of the same year, the auction success rates in both the Gangnam 3 Districts and Nodogang areas soared to 113.9% and 117.1%, respectively, far surpassing 100%.

The current trend of declining auction listings is also similar to that period. Typically, a decrease in auction listings is observed during periods of rising home prices. When it is more profitable to sell an apartment on the open market than through auction, creditors withdraw properties from auction. The number of auctions held this year has dropped sharply. In the Gangnam 3 Districts, there were 36 auctions last month, nearly half the number from October last year (62). In Nodogang, auction listings dropped from 80 in October last year to 60 last month.

During the overheated real estate market of 2021, the number of auction listings in both the Gangnam 3 Districts and Nodogang fell to single digits. In particular, in Nodogang, there were zero auction listings in August of that year.

However, experts do not define the current auction market as being "overheated" like in the past. The reason is that the auction success rate has declined compared to 2011. Last month, the auction success rates in the Gangnam 3 Districts and Nodogang were only 44.4% and 53.3%, respectively. Except for April (64.3%), the Gangnam 3 Districts did not exceed a 50% success rate in the first half of this year. In Nodogang, the success rate dropped to as low as 33.3% in February last year. In 2021, the Gangnam 3 Districts maintained a success rate above 70% throughout the year, except for November and December. In five months (January, May, July, September, and October), the success rate reached 100%. In Nodogang, every property listed for auction was sold in six months of the same year.

Kang Eunhyun, head of the Auction Research Institute at Myungdo Law Firm, stated, "For the auction market to remain overheated, the auction success rate must rise along with the auction price rate. Although the auction price rate in Seoul approached 100% last month, the success rate does not support the view that the market is as overheated as in the past."

Only High-Value Properties See High Winning Bids... Selective Auctions Increasing

Experts analyze that the "selective auction" trend in this year's market means that the auction price rate and the auction success rate are not moving in tandem. Because bidding demand is concentrated only on a handful of properties with high investment value, the gap between the auction price rate and the success rate is widening. As in the sales market, high interest rates, concerns over capital gains tax, and market regulations are making "blind investing" difficult, so investment demand is focused on "single smart apartments" in prime locations.

Lee Juhyun, senior researcher at GGI Auction, explained, "A low auction success rate combined with a high auction price rate means that investment demand is concentrated only on certain apartments, and these are being sold at high prices." Kang also added, "In 2021, investors flocked not only to apartments but also to small buildings and villas that were up for auction. In contrast, this year, investors are paying large sums only for a handful of apartments with redevelopment potential or excellent locations."

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Experts emphasize that in a market where auction price rates are rising in a few select complexes, bidders should carefully evaluate the investment value of each property before participating in the auction.

Kang stressed, "You should be cautious not to join competitive bidding simply because you expect real estate prices to rise. In particular, investors aiming to profit from price differences by reselling auctioned properties should consider the possibility of future loan and tax regulations and thoroughly assess the investment value of each property before proceeding."