Seoul Apartment Auction Winning Bid Rate Falls for 5 Consecutive Months... Lowest in 18 Months

Metropolitan Area Apartment Winning Bid Rate at 99.5%... Falls Below 100% Threshold
Increased Financing Burden Due to DSR Regulations This Year
20-30% Cheaper Unsold Properties Gain Popularity

Apartment complex in Seoul area (Photo by Yonhap News)

[Asia Economy Reporter Ryu Taemin] The court auction market, considered a leading indicator of the real estate market, has yet to recover from its slump. This appears to be linked to the recently frozen real estate market. The bid-to-appraisal ratio for apartments in Seoul has fallen for five consecutive months, hitting its lowest point in a year and a half. As the burden of financing increased due to the total debt service ratio (DSR) regulations applied since the beginning of this year, demand seems to have concentrated on relatively cheaper failed auction properties.

According to Gigi Auction, a court auction specialist company, the average bid-to-appraisal ratio for apartment auctions in Seoul this month was 96.3%. The bid-to-appraisal ratio represents the ratio of the winning bid to the appraised value; for example, an apartment appraised at 100 million KRW was sold at 96.3 million KRW. This is the lowest figure in 18 months since September 2020 and represents a 23.6 percentage point decrease from the record high of 119.9% in October last year. The Seoul bid-to-appraisal ratio had exceeded 110% for seven months from the first half of last year, setting new record highs five times, but has been declining for five consecutive months since November last year.

Bid-to-Appraisal Ratios in the Seoul Metropolitan Area All Decline... Failed Auction Properties 20-30% Cheaper Gain Popularity

The bid-to-appraisal ratios in metropolitan areas outside Seoul are also on a downward trend. As of the 30th, the average bid-to-appraisal ratio for apartments in the entire metropolitan area this month was 99.5%, falling below 100%. The bid-to-appraisal ratio for apartments in Incheon dropped by 11.5 percentage points from the previous month to 101.7%, marking the lowest in 14 months. This is a 22.2 percentage point decrease compared to the record high of 123.9% in August last year. In Gyeonggi Province, the ratio was 101.3% this month, the lowest in 15 months.

The auction bid-to-appraisal ratio is generally considered a leading indicator of the housing market. This is because the winning bid price is based on the lowest asking price or actual transaction price in the housing market. A high bid-to-appraisal ratio means there is strong competition among bidders due to expectations of rising house prices. It also indicates that many people expect house prices to increase.

The contraction of the court auction market for apartments in the metropolitan area is attributed to the government's comprehensive tightening of loan regulations. Senior researcher Lee Joo-hyun of Gigi Auction explained, “Although the bid rate slightly increased due to expectations that the new government would ease loan regulations, bidders still face significant financial constraints. Instead of aggressively bidding like last year, the trend is to submit conservative prices.” In fact, the average bid rate for apartments in the metropolitan area was 57.9% this month, up 4.1 percentage points from 53.8% in January this year, which was the lowest in the past year.

The influx of demand aiming to purchase relatively cheap properties through failed auctions also has a significant impact. Failed auction properties usually have complicated rights relationships or relatively poor locations such as accessibility, so they are often overlooked in a rising market. However, experts explain that the more unstable the market, the more popular these properties become because their prices are cheaper and less burdensome. In fact, among the 33 apartments sold at auction in Seoul this month, more than half?19 properties?had failed at least once before. When an auction property fails to sell and is re-auctioned, the minimum sale price is reduced by 20-30%, making it available again at a lower price.

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