The bidding rate for public auctions in Seoul has plummeted last year due to a real estate market downturn. The tightening of the real estate project financing (PF) market has led to a sharp decline in the popularity of public auctions for non-residential properties such as land and industrial buildings.
According to the seizure property auction bidding statistics from the Korea Asset Management Corporation (KAMCO) on the 4th, the bidding rate in the Seoul area for the fourth quarter of last year was 57.4%, down 22.77 percentage points from 80.17% in the fourth quarter of 2023. The bidding rate in Seoul, which had consistently shown over 80% until 2023, dropped sharply last year. In the fourth quarter of 2021, during the real estate boom, the bidding rate in Seoul was 85.09%, which was not significantly different from that in 2023.
This trend contrasts with the upward shift in housing prices in Seoul last year. According to the Korea Real Estate Board, the change rate of the housing transaction price index in Seoul last December was 0.08%, which turned upward, in contrast to the downward trend for the past two years ending in December 2023 (-0.07%).
Until now, the trends in public auctions and housing prices were similar. Right after a significant rise in real estate prices, the change rate of the housing transaction price index in Seoul was up 0.26% in December 2021, and the following year, in 2022, as the market turned downward, the housing transaction price index in Seoul fell drastically by -1.96%.
Despite the increase in housing prices in Seoul, the decline in popularity of the public auction market is linked to the nationwide real estate market recession. Historically, the Seoul market reflected trends similar to the national trend. The nationwide housing transaction price index for December showed ▲0.29% in 2021, ▲-1.98% in 2022, and ▲-0.10% in 2023. While the fluctuations were greater than those in Seoul, the trends were similar. However, last December, the national transaction price index decreased by -0.07%, continuing a decline similar to the previous year. The polarization of housing prices between Seoul and other regions has intensified.
The sharp drop in the bidding rate for public auctions in Seoul last year was attributed to non-residential buildings, including land and industrial and mixed-use buildings. In the fourth quarter of last year, the average bidding rate for non-residential buildings in Seoul was 40.96%, falling to half the level of the same period last year (80.12%). Land also saw an average bidding rate of 48.34%, a significant drop compared to 84.19% during the same period last year. Industrial and mixed-use buildings also had an average bidding rate of 60.08%, down from 75.05% the previous year. In contrast, residential buildings had a similar rate of 76.27% last year compared to 78.55% during the same period the previous year.
The situation in the public auction market has worsened nationwide as well. The bidding rate in the fourth quarter of last year was 61.59%, down 5.46 percentage points from 67.05% in the fourth quarter of 2023. Compared to the average bidding rate of 82.86% during the strong market conditions of the fourth quarter in 2021, this represents a drastic decline of 21.27 percentage points.
Additionally, due to the economic downturn, the number of items available in the public auction market has increased, but worsening market conditions have led to a decrease in bidders. The number of public auction bids in the fourth quarter of last year was 5,600, which represents a 9.6% increase compared to 5,107 the previous year. In contrast, the number of bidders decreased to 3,182 last year, down 6.4% from 3,400 the previous year.
Go Jun-seok, an associate professor at Yonsei University's Sangnam Business School, noted, "Properties such as land and industrial buildings are large items that transitioned to public auctions from real estate PF execution, but as market conditions have worsened, the number of items moving to public auctions has increased without corresponding demand, leading to a decrease in popularity." He added, "Furthermore, due to the complex procedures unique to KAMCO's seizure property auctions compared to other auctions, experienced investors are participating in the auctions. However, as transactions in Seoul apartments have plummeted, the market has tightened, making even these investors less inclined to enter the public auction market."