"Lately, more young professionals have been asking about villa prices. Most want to know whether they can immediately resell properties they win at auction."
Amid a rise in auction proceedings for multi-family and row houses driven by jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) fraud and underwater leases, investment demand from those in their 20s and 30s seeking short-term gains is growing. While short-term trading through trading business registration can avoid heavy capital gains taxes and allow transaction costs to be processed as necessary expenses for tax savings, industry observers caution that actually realizing gains may not be easy and a careful approach is needed.
The number of individual real estate trading businesses, which are mainly used for short-term auction trading, is rising, led by those in their 20s and 30s. According to the National Tax Statistics Portal on the 20th, the number of registered individual real estate trading businesses nationwide stood at 43,211 as of March this year, up 14.1%, or 5,341, from 37,870 in the same period last year. The increase was largest among those in their 30s at 20.1%, while those under 30 also grew 14.5%, both above the average. In Seoul, the number reached 8,198, up 23.2% from a year earlier, with particularly notable growth among those in their 30s (35.3%) and under 30 (34.6%).
Real estate brokerages in Seoul's Gangseo and Yangcheon districts, where multi-family and row houses are concentrated, have recently seen an increase in young customers showing interest in low-priced villas. The head of brokerage A in Sinwol-dong, Yangcheon-gu, said, "About three customers in their 20s and 30s came in this week looking to participate in auctions," adding, "Most of them want to win bids below the appraised value and immediately resell to make tens of millions of won."
An individual real estate trading business is one that generates profit through repeated property transactions, with sale gains classified as business income for tax purposes. This allows them to avoid short-term capital gains tax burdens of up to 77%. For example, in a designated regulated area, an individual who holds a home for less than a year and earns a 10 million won gain on transfer would face a total of 7.7 million won in taxes. In contrast, a trading business would pay 660,000 won if non-homeowner, 2.86 million won if owning two homes, and 3.96 million won if owning three or more homes.
In the auction market, multi-family and row house auction listings are increasing. According to auction platform GG Auction, the number of multi-family and row house auction proceedings in Seoul in the first quarter of this year reached 5,004 cases, up 63.7% from 3,057 in the same period last year. The number of sales also rose to 1,249 from 987.
This is interpreted as reflecting growing demand from cash-strapped people in their 20s and 30s seeking access to low-priced properties whose prices have dropped significantly amid the increase in auction listings. In particular, while the growth in trading businesses has slowed somewhat due to the trading business loan regulations implemented last year, the continued increase centered on those in their 20s and 30s is interpreted as reflecting small-scale investment demand.
Lee Ju-hyun, an expert analyst at GG Auction, said, "After the September 7 measures last year effectively blocked trading business loans in regulated areas of the greater Seoul region, trading businesses appear to have shifted demand toward low-priced properties such as villas." He added, "Among the properties concentrated with jeonse fraud cases, some investment demand is entering centered on Korea Housing & Urban Guarantee Corporation (HUG)-backed properties where holders gave up priority rights and put them up for auction, as gains can still be expected."
However, the industry stresses caution toward this investment approach. Realizing gains in a short period after winning an auction is not easy, posing significant cash recovery risks. An official at brokerage B near Hwagok-dong, Gangseo-gu, said, "I tried to sell a customer's villa that was won at auction in Hwagok-dong below the appraised value, but it didn't sell for six months." He added, "There's also a property won at auction with a 200 million won jeonse lease, but since it hasn't sold for over a month, we recently lowered the price by 10 million won."
Woo Byung-tak, a senior expert at Shinhan Bank's Premier Pathfinder, advised, "For young people who have difficulty getting loans and haven't accumulated much in assets, it's understandable to be interested in increasing returns by repeatedly trading accessible low-priced properties like stock investments." However, he added, "Since this eliminates the stability of real estate investment, which relatively reduces the possibility of loss by holding well-located assets long-term, caution is needed with short-term trading-style investments."
