"Apartments Are Too Expensive"... Seoul Villa Auction Market Heats Up as Investment Demand Surges

Seoul Apartment Bid Rate at 35.6%... Lowest in 26 Months
Bid Price Ratio Falls to 90% Range... Incheon and Gyeonggi Slow Down
Investment Demand Concentrates on Villas with High Redevelopment Expectations

View of apartments from Lotte World Tower Seoul Sky in Songpa-gu, Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Ryu Taemin] The court apartment auction market, considered a leading indicator of the real estate market, is struggling to escape the slump. The apartment winning bid rate in Seoul recorded its lowest level in 26 months at 35.6%. This is seen as a result of the frozen sales market recently, combined with the increased burden of financing due to the total debt service ratio (DSR) regulations applied since the beginning of this year, which has led investment demand to flock to the villa market where redevelopment expectations are high.

According to Gigi Auction, a court auction specialist company, the average winning bid rate for apartment auctions in Seoul last month was 35.6%. The winning bid rate is the ratio of items with a decided winning bidder among those put up for bidding. This is the lowest figure in 26 months since March 2020, dropping 44.4 percentage points from the record high of 80% in February last year, falling to less than half.

The winning bid price ratio in the Seoul apartment auction market was recorded at 96.4%. The winning bid price ratio is the ratio of the winning bid price to the appraised price; for example, an apartment appraised at 100 million KRW was won at 96.4 million KRW. The Seoul apartment winning bid price ratio exceeded 110% for seven consecutive months from the first half of last year, breaking the record high five times, but has been declining for five consecutive months since November last year. After falling to the 90% range at 97.3% in February, the ratio rebounded to 105.1% in April but dropped again to 96.4% in just one month.

The winning bid price ratio in metropolitan areas outside Seoul is also on a downward trend. The apartment winning bid price ratio in Incheon fell 11.2 percentage points from the previous month to 97.2%, dropping to the 90% range for the first time in 17 months. This represents a 26.7 percentage point decrease compared to the record high of 123.9% in August last year. In Gyeonggi Province, the ratio was 93.7% last month, falling to the 90% range for the first time in 22 months.

Price Burden and Loan Regulations Impact... Demand Concentrates on Villas with High Redevelopment Expectations

The winning bid price ratio in auctions is generally called 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 winning bid price ratio means there are many bidders competing fiercely due to expectations of rising house prices. It can also be seen as many people expecting house prices to rise. Conversely, the lower the winning bid price ratio, the more negative the outlook for the housing market.

Moreover, the contraction of the metropolitan apartment court auction market is interpreted as a result of the government's comprehensive strengthening of loan regulations. As buyers' financing capacity shrinks, it becomes difficult to actively participate in bidding. Lee Joo-hyun, a senior researcher at Gigi Auction, explained, “Due to loan regulations, bidders are under significant financial pressure,” adding, “Instead of aggressively bidding as last year, the trend is to submit conservative prices.”

On the other hand, villas are gaining popularity in the Seoul auction market. Last month, the winning bid price ratio for villas in Seoul rose for two consecutive months, reaching 97.6%. This contrasts with the apartment winning bid price ratio, which declined compared to the previous month. The industry analyzes this as an increase in demand to invest in areas expected to be redeveloped due to expectations of eased redevelopment regulations. In fact, a villa basement floor property in Cheongpa-dong 1-ga, Yongsan-gu, Seoul, was auctioned on the 3rd of last month for 758.64 million KRW, more than three times the appraised price of 250 million KRW.

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