The Wealthy Invest in 'Sangga' Over Apartments

38% of Asset Owners Eye Investment Destinations
Apartment Overtaken for the First Time, Taking 1st Place

[Image source=Yonhap News]

[Asia Economy Reporter Jo Gang-wook] "Commercial properties over apartments." It has been revealed that wealthy individuals in South Korea have started to show keen interest in investing in commercial properties this year.

According to the ‘2022 KB Real Estate Report’ recently published by KB Financial Research Institute, commercial properties ranked first as the preferred real estate investment destination among asset holders, with 38%. This is the first time since the survey began that commercial properties have surpassed reconstruction and general apartments in preference.

The institute analyzed that the rapid rise in apartment prices increased the comprehensive real estate tax burden, and since 2019, the preference for general apartments has declined. The preference for general apartments dropped from 32% in 2019 to 28% in 2020, and 20% in 2021. The preference for reconstruction apartments also showed a downward trend, falling from 35% in 2017 to 31% in 2018, 26% in 2019, 21% in 2020, and 20% in 2021.

On the other hand, office buildings saw rental fees increase by more than 5% year-over-year in both 2020 and 2021 despite the COVID-19 pandemic. Commercial properties also showed a pattern of rising transaction prices even amid increasing vacancy rates and falling rents. This is due to the rising investment returns. According to the Korea Real Estate Board’s Commercial Real Estate Rental Trend Survey, the annual investment returns for medium-large, small-scale, and commercial properties were 7.02%, 6.12%, and 6.58% respectively last year, up from 5.1%, 4.62%, and 5.4% in 2020. Notably, medium-large commercial properties recorded the highest annual investment return since 2008 (10.91%).

Due to the government’s successive high-intensity regulations, asset holders have shifted away from the housing market toward commercial real estate, and with rising returns, the nationwide commercial real estate transaction volume last year reached a record high of 215,816 cases. This figure is 40.5% higher than the 2019 transaction volume (153,637 cases) before the COVID-19 pandemic.