High-end officetels in the Gangnam area of Seoul are being put up for auction one after another. Most of them were sold during the peak of commercial real estate in 2020-2021 due to prolonged low interest rates. Although they were marketed in prime areas of Gangnam, a number of properties have gone up for auction due to tax delinquency or unsuccessful sales, resulting in unoccupied units.
According to the online auction system Onbid of the Korea Asset Management Corporation (KAMCO), a plot of land at 651-2, Yeoksam-dong, Gangnam-gu, Seoul (1114.6㎡) was listed as an auction item on the 23rd of last month. The land is located near the Cha Hospital intersection in Yeoksam-dong, situated close to the 9th line's Eonju Station. The appraised value is 75.7928 billion won.
This site was originally intended for the construction of the high-end officetel 'Gangnam Pienpolis Kriache.' It was expected to consist of 29 city-type dwellings, 24 officetels, and neighborhood commercial facilities, with a total of six underground and 18 above-ground floors. While 'Cheongdam Pienpolis' featured larger units ranging from 88 to 316㎡, Gangnam Pienpolis Kriache was targeted for one- to two-person households with units ranging from 39 to 59㎡.
It appears that this plot land ended up in auction without any buildings constructed because of tax delinquencies. The agency responsible for the auction request has been confirmed as the Giheung Tax Office. It is presumed that tax delinquencies followed an unsuccessful sale attempt in 2021. The sale prices ranged from a minimum of 1.454 billion won (for 39㎡) to 2.847 billion won (for 49㎡). The 'custom house' concept allowed buyers to select their own finishing materials, furniture, and appliances, and it promoted luxury kitchen furniture and services such as concierge, valet, and housekeeping.
A source in the auction industry noted, 'Despite the significantly low occupancy rate, the sale price was too high,' adding, 'Considering the construction status, it is presumed that the condition for starting construction was reaching a certain level of sale.'
The high-end officetel 'Seocho Reunid,' constructed by Lotte Engineering & Construction, also appeared in the auction. Although it was completed and occupied in January of this year, 100 of the total 156 units from the 3rd to the 19th floors were put up for auction. There are a total of 16 commercial spaces, all of which failed to sell. Despite several attempts to sell that began in 2021, it is reported that two-thirds remained unoccupied. Bidding occurred on eight occasions from June 23 to July 31, with many units going unsold.
This officetel also struggled due to the high sale prices that claimed to be 'high-end.' The smallest unit, at 42㎡, was priced between 1.466 billion won and 1.593 billion won, while the 73㎡ units were sold for between 2.619 billion won and 2.975 billion won.
A common trait of these high-end officetels is that they were all sold during the real estate boom of 2021. The government introduced stringent real estate regulations, and liquidity increased due to COVID-19, steering investments toward high-end officetels. This was possible as they escape restrictions on resale and loan regulations exceeding 1.5 billion won. However, following interest rate hikes originating from the U.S., the real estate market faced a downturn, making financial situations more difficult, leading to additional auctions.
Recently, the site of 'Podo by Fendi & Casa' in Nonhyeon-dong, which made headlines after the luxury brand 'Fendi' announced it would take care of the interior design, has come up for auction with a minimum bid of 318.3 billion won. Currently, it has gone unsold in four rounds, causing the sale price to drop to just over 200 billion won. This officetel was auctioned after a bridge loan worth 180 billion won failed to convert into a project finance.
Nam Hyuk-woo, a researcher in real estate within the WM Business Strategy Division at Woori Bank, noted, 'From the perspective of high-end officetel developers, they need to secure project feasibility and thus raise sale prices, but as the price gap with preferred nearby apartments shrinks and rental yields decline, demand is stifled.' He added, 'The prolonged high-interest rates, rising construction costs, and financial burdens combined with waning demand have led to numerous cases of unsold units and financial troubles culminating in auctions.'