"Interest Rates Rise and Reconstruction Delayed"... Even Gangnam Area Reconstruction Auctions Face a 'Cold Wave'

Reconstruction Complexes Fail One After Another Amid Transaction Freeze
Housing Market Cools Compared to Last Year's Heat
Popular Complexes Like Asia Athletes' Village and Sangye Jugong Also Overlooked

Panoramic view of the Asia Athletes' Village apartment complex in Jamsil-dong, Songpa-gu, Seoul (Photo by Ryu Taemin)

[Asia Economy Reporter Ryu Tae-min] Recently, the popularity of reconstruction and remodeling apartments in court auctions, considered a 'leading indicator of housing prices,' is waning. Due to consecutive interest rate hikes increasing the burden of financing and the slower-than-expected easing of reconstruction regulations, buyers are becoming more cautious in bidding. In particular, cases of failed bids for maintenance project complexes are increasing even in the Gangnam 3 districts (Gangnam, Seocho, Songpa), which have led the rise in Seoul housing prices.

According to Gigi Auction, a court auction specialist company, at the Seoul Eastern District Court Auction Division 4 yesterday, four bidders competed for a 99㎡ (exclusive area) unit in Asia Athlete Village, Jamsil-dong, Songpa-gu, and a new owner was found at 2.424 billion KRW (bid-to-appraisal ratio 90.1%). The bid-to-appraisal ratio is the ratio of the winning bid price to the appraised price; for example, a ratio of 90.1% means an apartment appraised at 100 million KRW was sold for 90.1 million KRW.

This property was unsold in the auction held last June due to no bidders. Later, in the August auction, 11 bidders competed and it was sold, but the winning bidder defaulted on the payment, leading to a re-auction yesterday. However, unlike the previous auction, the bidding enthusiasm has clearly decreased. This complex, with 1,356 households, is a reconstruction complex known as one of the 'Olympic Big Three' along with the Olympic Athlete Village (5,540 households) and Olympic Family Town (4,494 households).

Panoramic view of Daechi Hyundai Apartment Complex, Daechi-dong, Gangnam-gu, Seoul (Photo by Asia Economy DB)

The decline in popularity in court auctions is not limited to Asia Athlete Village. On the 11th, a 115㎡ unit in Daechi Hyundai, Daechi-dong, Gangnam-gu, which came up for auction, had only one bidder. This complex, with 630 households, was reborn as a new apartment through reconstruction in 1999 and is currently pursuing a 'second transformation' through a remodeling project. It is considered a representative Gangnam area apartment as it is located between Daechi Station on Subway Line 3 and Samseong Station on Line 2.

In August, units of 59㎡ and 58㎡ in Sangye Jugong Complex 10 and 11 in Sangye-dong, Nowon-gu, found new owners after two rounds of failed bids. These are representative reconstruction complexes in the northern part of Seoul, and their winning bid prices were 615.97 million KRW and 601.99 million KRW respectively, with bid-to-appraisal ratios of only 78% and 75%. This contrasts with last year when the housing market was hot; for example, a 46㎡ unit in Sangye Jugong Complex 14 auctioned in February last year attracted 46 bidders and was sold for 481 million KRW. This was 222.6 million KRW higher than the appraised price, with the bid-to-appraisal ratio soaring to 189%.

The waning popularity of reconstruction and remodeling complex properties is due to the deepening housing market downturn. Recently, rapid interest rate hikes have further intensified the transaction freeze in the housing market. Additionally, the increase in urgent sale properties has created an atmosphere of growing price declines.

The perception that the appraised prices of auction properties are set higher than buyers' expectations has also played a role. The appraisal for auctioned apartments is usually conducted 6 months to 1 year before the auction starts, and the appraisal was done last year when there were concerns that housing prices had peaked. Furthermore, the government's sluggishness in easing regulations related to housing maintenance projects such as reconstruction and redevelopment has dampened buyers' expectations.

Lee Joo-hyun, a senior researcher at Gigi Auction, explained, "This contrasts with last year when reconstruction complex properties in auctions saw soaring bid-to-appraisal ratios. Although these properties are still relatively more popular than general apartments, with high interest rates and stalled reconstruction projects, investment demand seems hesitant to jump in recklessly."

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