Seoul villa auctions draw retail bidders as prices, rents recover

As sales and jeonse and monthly rent transactions for Seoul villas — row houses and multi-family homes — pick up, retail investors are increasingly turning to the auction market. General bidders are flooding into properties auctioned off by the Korea Housing Urban Guarantee Corp. (HUG) after it waived its right of opposability, and winning bid ratios are climbing rapidly.

According to auction data firm Ggi Auction, a multi-family home in Gil-dong, Gangdong-gu, Seoul, with an exclusive use area of 24.4 square meters sold at a Seoul Eastern District Court auction Monday for 362.01 million won ($261,000) — about 100 million won above its appraised value of 266 million won. Six bidders competed from the first round, pushing the winning bid ratio to 136 percent.

HUG had put the property up for compulsory auction to recover a bond after paying the tenant's jeonse deposit on behalf of the landlord.

General bidders have been flocking to such HUG auction properties in growing numbers. Because HUG exercises only its priority repayment right — waiving opposability to speed up the auction process — winning bidders are not required to take on the existing tenant's deposit.

HUG's share of self-purchases at auction is shrinking fast. According to HUG, of properties it put up for auction last year, it directly won 3,510 while third parties won 4,228 — a relatively small gap. In the first half of this year, however, third-party wins surged to 4,347 while HUG's own winning bids were limited to 1,325. General bidders accounted for 76.6 percent of the 5,672 lots sold in the first half.

Winning bid ratios are also running higher among general bidders.

Ggi Auction data show that for Seoul villas, HUG's average winning bid ratio exceeded that of general bidders from January through March this year, but the trend reversed in April. HUG's average winning bid ratio that month stood at 67.28 percent, while general bidders reached 74.98 percent — a gap of 7.7 percentage points. In June, general bidders' average winning bid ratio of 73.20 percent again outpaced HUG's 69.59 percent.

Market observers say the recent recovery in Seoul villa prices and the jeonse and monthly rent market has spilled over into the auction market.

According to the Korea Real Estate Board, sale prices for Seoul row houses have risen continuously since September last year, gaining 3.37 percent from January through May this year — far outpacing the 0.59 percent increase recorded in the same period last year.

Jeonse prices are also rising sharply. Seoul row house jeonse prices climbed 0.59 percent in May alone, the highest monthly gain since October 2012 (0.61 percent) — a span of 13 years and seven months. Analysts attribute the surge to a contraction in apartment jeonse and monthly rent supply following the expansion of land transaction permit zones last year.

Transaction volumes are also on the rise. According to the Ministry of Land, Infrastructure and Transport, apartment jeonse and monthly rent transactions from January through May this year totaled 528,858 cases, down 7.2 percent from the same period last year. Non-apartment transactions — including row houses and multi-family homes — reached 701,756 cases, up 11.5 percent.

The auction market is reflecting this trend through a string of high-price sales. A villa in Sangdo-dong, Dongjak-gu, Seoul, entered its second auction round Tuesday at 342.4 million won — 80 percent of its 428 million won appraised value — but nine bidders competed and it sold for 421.5 million won, or 98.48 percent of the appraised value. Given that the tenant's jeonse deposit at the time of the 2021 contract was 414 million won, analysts say the winning bidder could recoup the initial investment by re-leasing the unit at current market jeonse rates.