Avoiding Housing Regulations, Moving to Building Market... 120 Bidders for Cheongdam Small Building Auction

The exterior view of a building in Cheongdam-dong, Gangnam-gu, which attracted 120 bidders on the 2nd and was sold for over 10 billion won. (Photo by Gigi Auction)

[Asia Economy Reporter Ryu Taemin] At the real estate auction held at the Seoul Central District Court on the 2nd, the hottest item was a “Kkoma Building” located in Cheongdam-dong, Gangnam-gu, Seoul, with a land area of 168㎡ and a building area of 162㎡. This commercial building, completed in 2017, was auctioned off at 10.251 billion KRW, which is 96% higher than the minimum price of 5.219 billion KRW, after attracting as many as 120 bidders. The second highest bid for this property also exceeded 10 billion KRW, indicating fierce competition.

Recently, with strengthened taxes and loan regulations on apartments and other residential properties, the popularity of commercial buildings has soared. Demand for small to medium-sized commercial buildings, known as “Kkoma Buildings,” is high not only in the Gangnam area of Seoul but also in non-Gangnam areas, causing prices to rise significantly. In particular, as official property prices and holding taxes have increased sharply and tax surcharges on multi-homeowners have reduced the profitability of housing investments, investors are turning their attention to commercial buildings.

The enthusiasm for investing in commercial buildings is also spreading to commercial auction markets. According to Gigi Auction, a specialized court auction company, on the 2nd, a first-floor store in Noryangjin, Dongjak-gu, Seoul, attracted a total of 17 bidders and was sold at 1.63 billion KRW, which is 129.6% of the appraised value. The auction rate means the ratio of the winning bid to the appraised price. An auction rate of 129.6% means that a commercial property appraised at 100 million KRW was sold for 129.6 million KRW.

On the same day, a commercial property in an apartment complex in Hongje-dong, Seodaemun-gu, Seoul, was sold for 317.2 million KRW, more than twice the appraised value of 154 million KRW, recording an auction rate of 206%. In August, a neighborhood commercial building in Chang-dong, Dobong-gu, Seoul, attracted 22 bidders and was sold for 25.011 billion KRW, more than 10 billion KRW higher than the appraised value of 14.456 billion KRW.

The overheating trend in commercial real estate auctions is due to a shortage of “Kkoma Building” listings in major areas such as Gangnam. Additionally, since the appraised prices are lower than the surrounding market prices, there is an expectation that properties can be acquired at relatively cheaper prices than in the sales market, which is attracting a large number of investors.

Senior Researcher Lee Juhyun of Gigi Auction explained, “Commercial buildings are becoming popular because of the expectation that investors can earn rental income while also aiming for capital gains through remodeling and reconstruction. Especially, the appraised prices in commercial real estate auctions do not reflect the income yield, so they are generally set lower than market prices, which attracts demand.”

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