[2020 Financial Weather Forecast] Commercial Properties Cloudy... Land Prices Affected by 45 Trillion Won Compensation Variable

[Asia Economy Reporter Lee Chun-hee] In the new year, the real estate market segment expected to experience volatility comparable to the housing market is the commercial and land sectors. This is due to the inflow of idle funds from the market, which have shifted following the ultra-strong regulations imposed on the housing market by the December 16 measures. However, experts also predict that the impact will be limited because these markets have high entry barriers, despite concerns about a balloon effect.

◆ Commercial Properties are 'Bifurcated'= Sun Jong-pil, CEO of Sangga News Radar, predicted a 'bifurcation' in the commercial property market for the new year. He said, "While the real commercial property economy will be sluggish, the investment market could see an inflow of funds." Although demand displaced by strengthened housing market regulations may enter the commercial property market, the market itself is expected to remain weak due to sluggish domestic consumption caused by the economic downturn.

Jo Hyun-taek, a researcher at the Commercial Information Research Institute, also said, "It is difficult to forecast it as promising," explaining that "offline retail stores are experiencing a downward trend." He analyzed, "Commercial properties in thriving districts still have a large floating population, but the situation in suburban commercial areas is not good. If the domestic economy does not recover, the outlook will inevitably be bleak."

CEO Sun also raised the possibility that the balloon effect might occur in a limited way. He said, "If commercial properties with 'reasonable sale prices' are supplied in markets where new supply such as land development occurs, demand for them will be high." Researcher Jo predicted that officetels, a type of income-generating real estate, will be popular, especially those that are close to workplaces or have good transportation conditions, as the proportion of single-person households increases.

◆ Land Market Depends on 'Compensation Costs'= Shin Tae-soo, CEO of Jijeon, said, "The land market in the metropolitan area is likely to see an expanded rise." He cited the government's continuous expansion of residential welfare policies and the supply policy of 300,000 households in the metropolitan area as factors. The designation of public land sites is expected to fuel land price increases. In particular, he pointed out the land compensation costs, tentatively estimated at 45 trillion won, as the biggest variable. If the massive land compensation costs flow back into not only the housing market but also the nearby land market, it could interact and stimulate the real estate market.

CEO Shin forecasted that the local land market would show a limited upward trend centered on some favorable areas such as those with expanded metropolitan transportation networks.

Meanwhile, according to the Korea Real Estate Board, nationwide land prices rose by 0.34% in November last year, continuing an upward trend for 108 consecutive months. The cumulative increase for last year was 3.2%.