"Gap Investment Still Possible?"... Investors Flock to Auctions as a Regulatory Haven [Real Estate AtoZ]

Winning Bid Ratios in Gyeonggi Regulated Areas Reach 102%
“Auction Is the Only Way to Buy with Tenants”
As Listings Dwindle, Investors Flock to the Auction Market Without Mandatory Residency
Winning Bids Exceed Appraised Values in LTPZs Like Bund

Following the October 15 real estate measures, there are signs that Seoul's overheated auction fever is spreading to the Gyeonggi region. As "gap investment"-purchasing properties with tenants in place-has been blocked in regular transactions within regulated areas, auctions where gap investment is still possible have effectively emerged as an alternative channel. With the phenomenon of "locked-in listings" becoming more pronounced after the new measures, experts predict that the popularity of the auction market will continue.

After the designation as a regulated area, the winning bid price in the auction market exceeded the previous highest price at Pangyo Botdeulmaeul 3 Complex. Gigi Auction.

According to an analysis commissioned by Gigi Auction, a public and private auction data provider, on apartment auctions in regulated land transaction permit zones (LTPZ) in Gyeonggi Province for the first week after the expansion of LTPZ designation (October 20-23), 13 out of 24 auctions held during this period were successful, resulting in a winning bid rate of 54.2%. The average winning bid ratio was 102%, which is nearly 8 percentage points higher than in September (94.40%). This indicates that many properties were auctioned off at prices higher than their appraised value.

Under the October 15 measures, starting from the 20th, twelve areas-including Gwangmyeong and Seongnam’s Sujeong, Jungwon, and Bundang districts, Gwacheon, Hanam, Uiwang, Suwon’s Paldal, Yeongtong, and Jangan districts, Anyang’s Dongan district, and Yongin’s Suji district-were newly designated as LTPZs. Among these, six areas saw their average winning bid ratios exceed 100% after the implementation of the regulations: Bundang District in Seongnam (113.3%), Sujeong District in Seongnam (105.10%), Hanam (102.0%), Gwangmyeong (101%), Dongan District in Anyang (101.80%), and Yeongtong District in Suwon (100.20%).

For example, an 84-square-meter unit in Pangyo Botdeulmaeul 3 Complex in Bundang District, Seongnam, was auctioned off for 1,859,999,999 won (a winning bid ratio of 116%), which is more than 100 million won higher than the highest price in the regular sales market this year (1.75 billion won). At Imae Samhwan in Bundang, a 116-square-meter unit with an appraised value of 1.49 billion won received a sole bid of 1,618,600,000 won (109%). In Gwangmyeong, a 59-square-meter unit in Haan Jugong was auctioned for 588,888,000 won (110%), and in Dongan District, Anyang, an 84-square-meter unit in Gwanyang Hyundai was sold for 805,990,000 won (102%). High-priced winning bids are continuing to appear not only in Bundang but also in other regions.

Experts analyze that the designation of LTPZs has shifted some of the demand from regular sales to the auction market. In LTPZs, buyers are required to actually reside in the property for two years, effectively blocking gap investment. However, under the Civil Execution Act, auctions are exempt from land transaction permit requirements. There is no obligation to occupy the property, and it is possible to lease it out immediately after winning the auction. Previously, after Gangnam, Seocho, Songpa, and Yongsan districts were designated as LTPZs in March, there have consistently been cases where the winning bid exceeded the appraised value.

Seoul's auction market also remains heated. After all 25 districts of Seoul were designated as LTPZs, the winning bid ratio for apartment auctions in Seoul from October 20 to 23 stood at 97.6%. While this is slightly lower than in September (99.5%), it still indicates a high level of demand close to appraised values. It is also the fourth-highest monthly figure this year.

The shortage of listings caused by demand-suppression policies is another factor driving the shift toward auctions. According to real estate platform Asil, as of October 24, the number of apartment listings in Seoul stood at 66,647, down about 10% from October 15 (74,044). As last-minute demand surged and purchases with tenants became virtually impossible, listings disappeared rapidly from the market.

In contrast, the auction market is expected to see a steady supply. According to the Supreme Court, the cumulative number of auction applications through September this year reached 90,012, nearly matching the same period last year (91,431). In September alone, there were 11,208 applications, up from 9,144 in the same month last year. The total number of applications last year was 119,312, the highest in 15 years since the 2009 financial crisis. Given that it typically takes three to six months from application to sale, auction volumes are likely to remain steady next year as well.

Lee Juhyun, Senior Researcher at Gigi Auction, said, "With the LTPZ designation effectively blocking gap investment in regular sales, auctions unaffected by these regulations are becoming an alternative channel. If the shortage of listings continues, investment demand will naturally flow into the auction market." He added, "In particular, in popular areas, as bidding competition intensifies, there is a high likelihood that winning bids will continue to exceed market prices."