[Practical Finance] Recession Is an Opportunity... The Optimal Timing for 'Real Estate Auction'

GTX, Reconstruction, and Rapid Integration Planning
Start with Complexes Where Issues Are Stirring
Biggest Advantage: Acquiring Below Market Price

There is an investment method that gains attention during real estate downturns: auction. Joo Hyun Lee, a senior researcher at Gigi Auction, a court auction specialist company, advises, "Paradoxically, now, when the real estate market is frozen, is the time when studying auctions is most necessary." During the boom period when house prices soared, it was common for properties to be sold above the appraised price, but since the second half of last year, the auction market has also entered a slump, causing the winning bid rates to drop sharply.

According to Gigi Auction, out of 127 apartment auctions held at courts in Seoul in March, only 42 cases (33.1%) were successfully sold. This means only one out of every three apartments put up for auction found a buyer. The winning bid rate, which refers to the ratio of the winning bid price to the appraised price, was 79%, marking four consecutive months in the 70% range. In other words, a villa appraised at 100 million KRW was sold for 79 million KRW. Regarding this, Senior Researcher Lee said, "A decline in the winning bid rate means that participants can acquire properties at a cheaper price," adding, "For actual homebuyers, this can be a good opportunity to secure a home."

What perspective should actual homebuyers with plans to purchase a home have when selecting auction properties? He emphasized, "Now is the time to approach with a long-term perspective for actual residence rather than short-term investment." He advised focusing on areas where accessibility to downtown improves due to the opening of GTX, regions expected to benefit from eased reconstruction projects, and places designated as rapid integrated planning zones?areas where long-term residence and value appreciation can be expected. Especially, areas or complexes where jeonse (long-term lease) prices remain stable are considered to have high satisfaction among residents, so such regions should be carefully observed.

One suitable property for both actual residence and investment purposes is the Gangnam LH Complex 1 (Building 109, 2nd floor) in Segok-dong, Gangnam-gu, Seoul, which is up for auction. This complex consists of 12 buildings with 809 households, completed in June 2013. The exclusive area is 85㎡ with 3 bedrooms, 2 bathrooms, and a stair-type layout, located near Suseo Station on Subway Line 3. The initial appraised price was 1.73 billion KRW, and after two failed auctions, bidding is proceeding at 1.1072 billion KRW.

The strength of auctions lies in acquiring properties cheaper than market prices. Auction properties are appraised, and with each failed auction, the court applies a reduction rate before proceeding with the next bidding. For example, in Seoul, a 20% reduction rate is applied each time an auction fails. Applying this, a property appraised at 1 billion KRW will start bidding at 800 million KRW after the first failure. If it fails twice, bidding starts at 640 million KRW, which is 20% less than 800 million KRW.

There are apartments where the bidding price has been set at about half the initial appraised price after repeated failures. Hanshin Apartment (Building 106, 12th floor) in Cheongnyangni-dong, Dongdaemun-gu, Seoul, is one such example. It was completed in December 1997, with a maximum of 20 floors, 9 buildings, and 960 households. The exclusive area is 114.95㎡, with access to Kyungchun Line, Line 1, Gyeongui-Jungang Line Hoegi Station, and Suin-Bundang Line Cheongnyangni Station. Nearby educational facilities include Samyuk Elementary, Cheongnyang Middle and High Schools. The appraised price at the start of the auction was 1.28 billion KRW, but after three failed auctions, the bidding price dropped to 655.36 million KRW. Considering that a unit of the same size was traded for 780 million KRW last month, this is an opportunity to purchase a home cheaper than market price.

The Daekwang Roseviang Apartment (Building 601, 10th floor) in Pangyowon Village Complex 6, Pangyo-dong, Bundang-gu, Seongnam-si, with an exclusive area of 58㎡, was also auctioned at a price in the 700 million KRW range, cheaper than market price. This 470-household apartment was completed in 2009, with an appraised price of 1.03 billion KRW and one failed auction, making the bidding deposit 721 million KRW. From the bus stop in front of the complex, buses to Pangyo Station on the Shinbundang Line and Gyeonggang Line are available. Direct buses to Seoul Station, Samsung Station, and Gangnam Station make commuting to major business districts in Seoul convenient. Pangyo Elementary and Middle Schools are right next to the complex, ensuring safe school commutes, and nearby schools include Unjung Middle, Bopyeong Middle, Nakseong High, Seongnam Foreign Language High, and Neulpureun High. Current asking prices range from 900 million to 1.3 billion KRW. In March, a unit of the same size was sold for 920 million KRW.

Auction properties should be selected according to one's situation, such as location, asset level, and whether one has children. The most important caution is not to judge properties solely based on actual transaction prices and asking prices. Senior Researcher Lee said, "There are many cases of urgent sales or transactions between related parties, so one should not make decisions based only on actual transaction prices and asking prices," and emphasized, "Now, it is crucial to monitor trends mainly in areas or apartments you are familiar with or have been interested in, and calculate appropriate prices."

It is also important to keep in mind that you cannot inspect the property before purchase and make decisions accordingly. Senior Researcher Lee suggested, "Unlike sales, which involve brokerage services and price negotiations, auctions require you to analyze rights and make value judgments yourself," adding, "Also, unlike sales, you cannot view the interior of the house in advance or negotiate moving dates, so you must consider these risks when approaching auctions."

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