The auction market is drawing intense interest as real estate regulations tighten. Under the government's tough measures, the transfer of association member status is restricted and occupancy requirements are imposed for redevelopment and reconstruction apartments in Seoul. But auctions can circumvent the rules.
Real estate auction and investment expert Ko Jun-seok, a professor at Yonsei University Sangnam Institute of Management (CEO of JEDU WM), said in a Jan. 26 interview with ChosunBiz, "Auctions are a legal way to avoid regulations and aim for capital gains, and even beginners can approach them easily if they properly understand rights analysis and eviction issues."
Professor Ko cited tougher regulations and rising home prices as reasons for the boom in the auction market. Ko said, "The size of the court auction apartment market is very small compared with the overall apartment market, so it may feel like 'a league of their own,'" but added, "Even if the sale price ratio (the actual sale price as a percentage of the appraised value) exceeds 100% during an upcycle, it is still advantageous compared with market prices." He added, "Unlike the general sales market, there are no brokerage fees, and the court cancels encumbrances, so there is no fear of fraud."
Ko said, "In Seoul, regulations restrict the transfer of status after an association is formed and impose occupancy requirements in general sales, but auctions can avoid this," adding, "If you do not take out a loan, there is no occupancy requirement, so gap investment (purchases with jeonse tenants) is possible, and transfers of status are especially free when a financial institution has filed for a voluntary auction."
Emphasizing the time advantage of auctions, he analyzed that auctions are particularly favorable during periods of rising real estate prices. Ko said, "An appraisal is conducted when an auction is filed, but the sale takes place six months to a year later," adding, "If home prices rise during this period, the market price of a property appraised at 100 million won could rise to 150 million won, and if you win at 120 million won, you can buy it 30 million won cheaper."
Ko said that for redevelopment and reconstruction apartment auctions, rights analysis and eviction must be checked meticulously. He said, "By thoroughly checking through rights analysis and eviction, you should avoid reconstruction apartments subject to cash settlement, which cannot transfer association member status," adding, "Even after the management and disposition plan is approved, if it is a voluntary auction by a financial institution, the transfer of association member status is possible, so if there are nonperforming loan (NPL) auction items from financial institutions, they merit attention."
He said, "Among financial institutions' NPL items, a recent listing in Hannam District 3 with an exclusive area of 84 square meters and a rights value (the standard amount recognized when receiving a new dwelling) of 1.5 billion won came to the auction market at 3.4 billion won," adding, "The court has confirmed that the transfer of association member status is possible, and at move-in, prices are expected to exceed 150 million won per 3.3 square meters, plus you can get a 130 million won refund, making it a prime listing."
Ko advised that the harsher the real estate regulations, the more advantageous it is to craft a rigorous financing plan and buy leading local apartments in the auction market. On the rights analysis that beginners find most difficult, Ko said, "If you know the base right, half of auction study is done," adding, "The base rights are four: mortgage with maximum debt amount, provisional seizure, provisional registration for collateral, and registration of the auction commencement decision. The buyer assumes only senior rights that precede the base right, and all junior rights are extinguished."
Ko advised that the eviction issue in auctions, which beginners find difficult, can also be resolved through the delivery order system. Ko said, "If you win an auction for dwellings and six months have passed but an occupant without opposability (such as a tenant) still resides there, you can apply to the court for a delivery order," adding, "If the occupant does not comply, you can apply to the court for compulsory execution and take possession safely."
Professor Ko Jun-seok serves as a professor at the Yonsei University Graduate School of Business, Sangnam Institute of Management. He earned a doctorate in law from Dongguk University and worked at Shinhan Bank for 30 years, serving as head of the Real Estate Investment Advisory Center and head of the Shinhan PWM Privilege Seoul Center. He has been recognized by the Samsung Economic Research Institute as the "top expert in real estate financial technology." He is currently CEO of JEDU WM, an advisory board member at Gerson Lehrman Group, and a columnist. Through the fandom business platform Pending, he provides real estate auction and investment information via "Monthly Ko Wealth."