Eight-Year History of Profitability of “Blue Chip” Apartments and Stocks

A survey conducted by Realty 114 indicated that the prices of 25 blue chip apartments mainly in the Gangnam area surged an average of 214.2 percent for the period between January 1997 and June 10, 2005. The survey was commissioned by Dong-A Ilbo.

Meanwhile, 25 blue chips on the stock market in terms of market capitalization recorded an average 216.2 percent jump in their prices for the same period according to data provided by Daishin Securities.

But the two groups of blue chips are found to have a big gap in security of investment.

The average prices of blue chip apartments have never dropped more than six percent with the exception of a 19.75 percent fall in the period between December 1997 and July 1998. Other than this, their average prices fell twice only at the end of 2003 and at the end of 2004.

By contrast, average values of blue chip stocks were nearly halved (51.0 percent down) in the period between December 1999 and October 2000, recording the largest drop during the period. Another sharp fall came in the period between February and June 1998 (46.6 percent down) and between March 2002 and March 2003 (38.9 percent down).

The property market also has shown greater disparities in price increasing rates among individual items than the stock market.

The share price of Samsung Electronics jumped 10 times, up by 954.1 percent, between January 1997 and June 10, 2005. In the meantime, the share price of KTF plunged by 91.6 percent to one tenth of its initial value in 5.5 years since it was listed in December 1999.

In sharp contrast, the values of blue chip apartments haven’t declined. Nor have they increased as high as Samsung Electronics. The price growth rates range from 162.5 percent to 416.1 percent.

Kim Se-joong, a researcher of Korea Investment & Securities Co., said that, “property has a lower risk of a drop in prices compared to the relatively volatile stock market,” adding, “On the surface, the two investments offer similar profitability, but in reality, property investment has a higher profitability with all risks taken into consideration.”

Wan-Bae Lee Sang-Rok Lee roryrery@donga.com myzodan@donga.com