Auction Frenzy for Apartments Under 100 Million Won Public Price Amid Overlapping Regulations... 50 Bidders Gather at Over 30-Year-Old Provincial Complex

Increase in Corporate Bids with Low Tax Rates
Investment Surge Exploiting Regulatory Loopholes

[Asia Economy Reporter Ryu Tae-min] #At a real estate auction held at the Chungju District Court on the 30th of last month, the hottest item was a small apartment measuring 47㎡ (exclusive area) in Namsan 1 Complex, located in Gyohyeon-dong, Chungju-si, Chungbuk. This 35-year-old apartment attracted 50 bidders and was sold for 118.23 million KRW, nearly 2.5 times the appraised value of 48 million KRW. The winning bidder was confirmed to be a corporation, not an individual.

The popularity of low-priced apartments with a publicly announced price under 100 million KRW is soaring in court-conducted real estate auctions. Competition is heating up with dozens of bidders flocking not only to the outskirts of the metropolitan area but also to local apartment auctions in Chungnam, Chungbuk, Jeonbuk, and Gangwon provinces. In particular, as the government strengthens acquisition and capital gains taxes on multi-homeowners, investments exploiting regulatory loopholes such as indirect bidding through corporations are increasing.

According to Gigi Auction, a specialized court auction company, in early June, 64 bidders competed at the auction for a 52㎡ unit in Songnae Jugong 2 Complex, Jihaeng-dong, Dongducheon-si, Gyeonggi-do. The appraised value was 143 million KRW as of last August, which was lower than the market price, and since the publicly announced price was under 100 million KRW, demand surged. This property was eventually sold for 217.38 million KRW, a winning bid rate of 152%. Similarly, the winning bidder was identified as a corporation.

The winning bid rate refers to the ratio of the winning bid price to the appraised value. For example, a winning bid rate of 152% on an apartment appraised at 100 million KRW means it was sold for 152 million KRW.

Recently, in areas such as Iksan and Gunsan in Jeonbuk and Wonju and Gangneung in Gangwon, where many complexes are priced under 100 million KRW, double-digit numbers of bidders are frequently appearing. On the 2nd of last month, 23 bidders competed for a 52㎡ unit in Madong 2 Complex, Iksan-si, Jeonbuk, and it was sold for 102 million KRW, 1.5 times the appraised value of 65 million KRW. In Ipam-dong, Gangneung-si, Gangwon, a 59㎡ unit in Jugong 6 Complex attracted 20 bidders and recorded a winning bid rate of 126%. Both complexes are old apartments built over 30 years ago.

Experts point out that the government's overlapping regulations on multi-homeowners are producing a counterproductive effect, turning even old small apartments in provincial areas into investment targets. In particular, the recent increase in auction wins under corporate names is also explained by experts as an evasion phenomenon to avoid regulations. In fact, since June 1 of this year, if an individual sells a house held for less than one year, the capital gains tax rate has been strengthened to 70%, but the corporate tax rate is a maximum of 45%, which is the basic rate (10-25%) plus an additional 20 percentage points. For example, if the capital gain is 100 million KRW, an individual must pay 70 million KRW in capital gains tax, but a corporation only needs to pay up to 45 million KRW. Because the tax rate imposed on individuals is so high, the corporate tax rate is relatively lower.

The acquisition tax is similar. The acquisition tax rate for corporations is 12% regardless of the number of houses, but if a corporation with an office outside the metropolitan area (all of Seoul, parts of Incheon and Gyeonggi) purchases a house with a publicly announced price under 100 million KRW, the acquisition tax rate is reduced to 1.1%.

As local low-priced housing auctions become overheated, concerns about side effects are also being raised. Park Won-gap, Senior Real Estate Specialist at KB Real Estate, said, "There is a tendency for demand to flock to the auction market due to the perception that prices are cheaper than the sales market," adding, "However, if competition overheats and the winning bid price becomes too high, there is a risk of a 'winner's curse,' so caution is needed." Lee Joo-hyun, Senior Researcher at Gigi Auction, said, "If speculation aiming for short-term profits increases, housing prices in the area could rise sharply, causing harm to local residents."

This content was produced with the assistance of AI translation services.