Seoul Gangnam Gaepo Redevelopment Apartment
Winning Bid Rate at 130%, Highest in October
Purchase of Mid-to-Low-End Properties in Outskirts is Sluggish
Comprehensive Loan Regulations, Yielding Side Effects
An apartment located in Gaepo-dong, Gangnam-gu, Seoul, went up for auction. The appraised price was 1.95 billion won. Nine bidders participated in the sale, resulting in a winning bid rate of 130% of the appraised value, marking the highest bid rate in Seoul’s apartment auction market in October. The apartment is currently undergoing redevelopment and is at the stage of project implementation approval after the establishment of the association.
In Gangnam’s three districts (Gangnam, Seocho, and Songpa) and Yongsan-gu, which are designated as speculative overheating zones, the status of a union member cannot be transferred when purchasing a reconstructed apartment, as a general rule. This also applies when acquiring through auctions, and if succession of the union membership status is not possible, it may become subject to cash settlement, necessitating caution.
However, if the creditor who filed for the auction is the state, a local government, or a financial institution under the Housing Act Enforcement Ordinance (such as a bank), it is exceptionally allowed to inherit the union membership status. Hence, before deciding on bidding, one should confirm whether the owner is an association member and who the creditor is. In this case, the owner was investigated as a union member and the creditor was identified as the Korea Asset Management Corporation, so there are no particular issues with transferring the union membership status. Despite high-interest rates and strengthened loan regulations, the high winning bid seems to have been driven by high expectations for value appreciation.
On the other hand, the apartment with the lowest winning bid rate was located in Nowon-gu, appraised at 400 million won. Six people bid on it, resulting in a winning bid of 71% of the appraised value. The apartment is situated in an area with steady rental demand due to nearby elementary, middle, and high schools. However, despite the building’s age, redevelopment is sluggish, and the purchase trend has diminished due to high-interest rates from commercial banks and strengthened loan regulations, recording a winning bid rate that falls far short of the national average.
The average winning bid rate for October’s Seoul apartment auctions was compiled by dividing the appraisal prices into segments. For high-end apartments priced over 1.5 billion won, the average bid rate was 105.5%. Apartments priced over 900 million won but less than 1.5 billion won had a rate of 93.7%, while those over 600 million won but less than 900 million won had a rate of 91.9%. Those priced at 600 million won or less had a rate of 88.5%.
The more expensive the appraised price, the higher the winning bid rate appeared. The higher price reflects the likely superior location and the potential for the apartment to be newly built.
However, the issue is that the strengthened loan regulations are not significantly affecting some highly preferred regions and complexes but are rather significantly dampening the purchase demand for mid-to-low-end apartments in the outskirts. The reduced loan limits act as a relatively higher barrier for mid-to-low-end apartment buyers, thereby exacerbating regional disparities and polarization.
Since the implementation of the Stress Total Debt Service Ratio (DSR) Phase 2 in September, the winning bid rate in Seoul’s apartment auction market also showed signs of slowing. However, starting in October, high-end apartments in the Gangnam area showed strong performance again, with the average winning bid rate for apartments in Gangnam’s three districts hitting a yearly high of 105.5%.
While the policy, designed to curb household loan growth and stabilize housing prices, is understandable, the mortgage loan scale, growth rate, and house price appreciation differ by region.
Comprehensive regulations that do not consider this can lead to unforeseen side effects, indicating the need for tailored regulations that take into account the characteristics of the demand by region or price range.
[Lee Joo-hyun, Specialist at Gigi Auction]