[Practical Finance] Yeoksekwon? High-end? ... You Need to Distinguish the Quality of Officetels

There Must Be Clear Advantages Such as Location and Liquidity

[Asia Economy Reporter Noh Kyung-jo] As high interest rates reduce the attractiveness of investing in officetels, distinguishing the good from the bad has become crucial. Officetels, a representative product of income-generating real estate, are considered residential properties under tax law but are not included in the housing count under certain conditions. They are often built in commercial areas with advantages such as higher floor area ratios and allow for small-scale investments. If the location is good, demand remains steady, making rental income quite profitable.

In particular, officetels serve as a residential stepping stone, catering to the demand from newlyweds and 1-2 person households. According to the Korea Construction Industry Research Institute's report published in March last year titled "The Era of One Million Officetels: Achievements and Challenges," 73.4% of officetel residents were single-person households based on the 2020 housing survey. According to statistics from the Ministry of the Interior and Safety, while the registered population decreased for three consecutive years last year, single-person households accounted for 41.0% (9,724,256 households) of the total, approaching the milestone of 10 million households.

View of officetel-dense area near Gwanghwamun, Seoul / Photo by Yonhap News

However, like apartments, officetels are affected by the real estate market cycle. With the government easing real estate regulations, there are many pessimistic views on investing in officetels. Moreover, experts say officetels are not the 'mainstream' but rather substitutes for apartments. Therefore, it is advised to carefully consider the conditions and approach them as a source of income from a long-term perspective.

The most important factor required for investing in officetels to generate profit is location (proximity to work, subway stations, etc.). This is because the main demand group, young single-person households, prioritize convenience for commuting and nearby lifestyle amenities. This is why being near a subway station is as important as for apartments.

When officetels are built within large complexes, residents can share various community facilities and expect reduced common maintenance fees. However, most officetels are individual buildings consisting of one or two towers, so attention to infrastructure is unavoidable. This is also a consideration when investing in officetels supplied in new residential development districts. Apart from the first-mover advantage, factors such as land prices and development plans must be thoroughly considered. This means the risks are significant.

That said, investing hastily in old officetels is also risky. Even if profitability has been verified, it can become a hurdle when considering exit strategies. For monthly rents reflecting the liquidity of single-person households, preferences for new buildings or conversion to apartments must be taken into account. Yoon Ji-hae, head of the Research Team at Real Estate R114, emphasized, "Officetels have accumulated data such as market prices, so their liquidity is better compared to villas. The problem lies in depreciation and vacancies."

She also explained that nowadays, when banks guarantee deposit interest rates of 4-5%, investors tend to choose safer options, and the simultaneous rise in loan interest rates also makes investing in officetels more hesitant. Yoon said, "I understand that there is demand for high-end officetels in areas like Gangnam, Seoul," adding, "You need to select products with clear advantages and competitiveness."