'Scarce' Small Building Auction Market Value 'Soaring'

Investment Alternatives Gain Popularity Amid Housing Regulations

Average Winning Bid Rate at 126.40%

Sales Rate Up 10 Percentage Points Compared to Last Year

[Asia Economy Reporter Kim Min-young] On the 17th, at the Seoul Central District Court auction, 11 bidders competed for a neighborhood commercial building in Singil-dong, Yeongdeungpo-gu. Ultimately, this property, appraised at 5.164 billion KRW, was sold for 8.211 billion KRW, 59% above the appraisal price. Industry experts say this is unusual given the complicated rights analysis compared to housing and the fact that it is a high-priced real estate auction exceeding 5 billion KRW.

The value of ‘Kkoma Buildings’ priced under 6 billion KRW is soaring in the auction market. ‘Kkoma Building’ refers to small neighborhood commercial or office buildings with market prices around 5 to 6 billion KRW. Due to strengthened government regulations on housing transactions such as loan restrictions and increased taxes, cash-rich investors appear to be flocking to income-generating real estate like Kkoma Buildings as an alternative.

According to JJ Auction on the 24th, the average winning bid rate for neighborhood facilities (Kkoma Buildings) priced under 6 billion KRW in Seoul this year up to the previous day was 126.40%. This is the highest figure since the company began compiling related statistics in 2015. The winning bid rate is the ratio of the winning bid price to the appraisal price. For example, a winning bid rate of 126.4% means a property appraised at 100 million KRW was won at 126.4 million KRW. The average winning bid rate for Kkoma Buildings was below appraisal price at 97.1% in 2019 and 99.2% last year but surged sharply this year.

The sales rate, which refers to the ratio of successful bids to total bids, also rose to 65%, nearly 10 percentage points higher than 55.90% in 2019 and 55.60% in 2020.

Competition is also evident in the number of bidders. This year, the average number of bidders for Kkoma Building auctions was 14.08, the highest since 2015. Recently, a neighborhood commercial building in Cheongdam-dong, Gangnam-gu, with a total floor area of 536㎡, attracted as many as 120 bidders. This building was eventually sold to a new owner for 10.251 billion KRW, nearly double its appraisal price of 5.219 billion KRW.

JJ Auction explains that the soaring popularity of Kkoma Buildings in the auction market is due to increased demand to the point of scarcity even in the sales market, while the supply of auction properties this year is limited to only 20 cases.

Experts expect the trend of seeking income-generating real estate such as Kkoma Buildings to continue for the time being. The real estate market has already become a playground for cash-rich investors due to loan restrictions, and the expectation of rental income growth amid economic recovery following the phased transition to post-COVID normalcy (With Corona) is also a factor.

Senior Researcher Lee Joo-hyun of JJ Auction said, "The winning bid rate for apartments in the Seoul metropolitan area, including Seoul, which reached 110% until last month, has been declining this month," adding, "Due to strengthened regulations on apartments and other housing, investment demand is shifting toward commercial facilities or land with better returns."

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