Fast Growing Market of Seoul Down Town Buildings

A market of Seoul down town buildings is growing fast.

According to ` Al to Korea`, a real estate information company, the total trade of big office building (more than 10 stories) was 270 billion Won in 98`, 610billion in 99`; it’s a fast growth with a scale of 1 trillion compared to last year. Especially, this year the market is growing very fast marking the total of 1 trillion and 100 billion in the first half of the year, with the success of the dealing of a 660 billion won building, the biggest building of Korea `I-Tower. `

The dominant group of the market is mainly consisted of foreign companies or funds, which take 79 percent of the total (2 trillion and 350 billion won). The rest 21 percent (630 billion won) is domestic trade.

But domestic bank and life insurance companies are joining the dominant group of the market with a growing expectation on the real estate investment system started from July. Along with this boom, the prices of buildings are also going up. For example, the price of building in Kangnam was 6.55 million won per pyong in 1999 (6.23 million won in 1998); now the price is 6.76 million won, and the margin is as much as 8.01 million Won.

On the contrary, the building rent is going down because of the long-term economic slowdown. Accordingly the total earning rate in real estate investment, the ratio divided by the lease income and profits from expected trade, is decreasing.

Seo Hoo-Suck president of `Al to Korea` said, `` After the foreign currency crisis, many foreign companies bought buildings. And in many cases, the earning rate in investment was as high as 25 percent and the average rate was expected as 15 percent. However, recently the ratio decreased to 10 percent.``

Observers expect the size of Seoul down town building market is expected as average one trillion for a while; because the size of large building (more than 10 stories) market is 60 trillion Won and many financial companies will invest in large office building, which endorses a stable income. President Seo said, ``We can expect 2~3 trillion growth due to the new system started July and the giant deal of 600 billion Won building. The booming situation can be kept probably until next year; however once the market becomes stable, the size would be around one trillion Won. ``

Hwang Jae-Seong jsonhng@donga.com