Several Buildings Worth Billons of Won in the Waiting Line

Recently, a large store building located at Myeong-dong appeared in a court auction. Its market value was 30.4 billion won.

“S” with 16.4 billion worth of bonds for this building put it up for auction. The building’s location is in the core section of Myeong-dong, known as the most expensive area in Korea. However, the building is scheduled for its third auction next month after the first two failed. The bidding price was 19.4 billion won, 64 percent of its estimated price.

Due to the extended economic slump, a large store and hospital buildings are being released for auction, which is, according to experts, to be continued for a while.

Real Estates Worth of Billions of Won are Expected—

Since 2000, it has been rare for a large store building at Myeong-dong to be put up for auction. This is even more so, given that Myeong-dong is the representative commercial area of Korea and that it has been considered as a profitable real estate area, rarely affected by economic instability.

However, the recent economic stagnation has made them wind up for auction in the end.

A large store building located in Jung-gu was sold for 42 billion won at the auction held by the Seoul Central District Court on June 23. The price of the building was valued at 48.8 billion won, but the owner couldn’t pay back 10 billion won to the bank.

A large hospital building, with an estimated value of 36.7 billion won, has also been put up for auction, due to failure in paying back 2.6 billion won of debts. Its location is at Seongnam, Gyeonggi Province.

Large Real Estate Auction Testifies to Serious Economic Stagnation—

The increased number of large real estate properties for auction can be interpreted to mean that the economic situation is worsening.

Usually, at the early state of slowdown, “residential” type real estate accounts for most auctions. When the slowdown is continued, auctions tend to have real estate as a “means of living.” At the last stage, profitable real estate, such as large store and hospital buildings and factories, appear for auction.

Dong-A Ilbo recently requested GGI Auction, an auction information company, to survey the trend of changes in auctions, and received the result that during the period between January 2004 and June 2005, the proportion of profitable real estate has been on a steep rise.

The number of “residential” type real estate properties recorded 13,275 last November, the largest-ever figure. At that time, a residence of Tower Palace Complex, the symbol of luxurious housing, was put up for auction, drawing attention.

Among business and commercial real estate properties appearing in auction, the number of those under two billion won, which could be categorized into “means of living” type recorded its highest, 2,542 cases in January, while profitable real estate recorded its highest of 131 cases in May 2005.

With the continued economic stagnation, the auction market seems to have faithfully followed the steps of the typical changing trend, which is from “residential” to “means of living,” and then again to “profitable.”

Meantime, recently in the financial markets, auction funds targeting profitable real estate properties are gaining in popularity.

The Trend Seems to Continue—

The auction market is expected to see more profitable real estate, according to experts.

This is because there is no sign of economic revival as for now and the recent reduction on a loan-to-value (LTV) ratio dropped more than the value of real estate as mortgage.

“The increase in profitable real estate, despite the low interest rate, can be translated as the economy is seriously in bad shape, and the money flow is almost too slow,” said director Lee Young-jin of Digital Taein, another auction information company.

Considering the time necessary for the entire process from creditor’s request for auction to court to when the auction is held, the current auction market actually reflects the situation from July to September last year. In other words, other objects “in the waiting line” have been accumulated to a great degree.

“Auction objects requested for auction since late last year are soon to come, so the auction for large commercial and hospital buildings is expected to continue for a while to come,” said manager Kang Eun of GGI Auction.

Sang-Rok Lee myzodan@donga.com