Foreign Firms Buying Korean Buildings

Foreign investors are competing again to buy buildings in Korea. The main cause of the competition is the recent decrease in building supplies in Seoul, raising profitability for building owners.

One overseas investor said, “Although the market is not as lucrative as it used to be right after the financial crisis in 1997, Korea’s real estate market is still one of the most stable and profitable markets in the world.”

Foreign investors continue buying buildings-

According to real estate agents on August 10, GERE, GE’s real estate affiliate, bought Building Hanoe in Da-dong, Jung-gu, Seoul, and the Samhwa Building, located in Sogong-dong, Jung-gu in the first half of the year (from January to June).

Merril Lynch paid 48 billion won for Building Daewon in 4Ga Chungmu-Ro, Jung-gu while MSPK, Morgan Stanley’s affiliate, purchased Trust Tower in Yangjae-dong, Seocho-gu for around 86.8 billion won.

Also Deutsche Asset Management, operating under the new corporate name RREEF, has been going through due-diligence procedures after being selected as a preferred bidder of Building Myungji, located in Sunhwa-dong, Jung-gu. The building would cost it 260 billion won when even excluding other expenses.

Real estate agents expect that foreign investors will spend a total of 700 billion won purchasing buildings in Korea this year. Kyobo Realco, a Korean real estate consulting firm, said, “Foreign investors will be able to offer higher price when they bid against domestic buyers as they can finance from Japan or Europe, where interest rates are lower than in Korea.”

Vacant office buildings are hard to find in Korea-

Overseas investors are attracted by buildings in Korea for the profitable rental fee.

According to R2Korea, a consulting firm, the vacancy rate of 10-or-more storeyed buildings in southern Seoul, around Gwanghwamoon and in Yoido stood at 3.2% in the the second quarter (from April to June).

The rate is very low since, in these areas, vacancies almost only occur when tenants move in and out, which means there are rarely vacant buildings in the areas.

In Seoul, the vacancy rate has been low because inappropriate redevelopment left little room for office buildings after the financial crisis in Asia.

The head of GERE said, “Korean real estate market is very attractive for investors when you consider that the vacancy rates for office buildings are as high as in the 10 percent range in major cities in East Asia such as Singapore and Hong Kong.”

Building prices are rising-

Prices of buildings are rapidly climbing in Korea.

In the second quarter, building prices in Seoul hit the 10 million won level for the fist time, recording 10.28 million won. The number is more than double the price in 1998, around 4.4 million won.

abc@donga.com