[Practical Finance] Holding Up Despite Market Slump... Focus on 'Chosohyeong Officetel'

Steady Micro-Size Transactions Despite Market Contraction
Increased Trading Volume Leads to Price Rise
Essential to Compare Income and Capital Returns

[Asia Economy Reporter Kwak Minjae] While the real estate market bubble has burst and officetel investments have generally contracted, interest in ultra-small officetels remains steady. This is because, in an era of 9 million single-person households, the attractive factors of stable cash flow and leverage effect still hold. In particular, it is analyzed that it is better to look for ultra-small properties with high liquidity at affordable prices today rather than in the current ultra-low interest rate situation where it is uncertain when rates will rise.

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Increase in Ultra-Small Officetel Transactions and Price Rise

Ultra-small officetels typically have small areas, resulting in lower purchase price burdens and high rental yields, making investment easier. Generally, in a high-interest rate era where the relative value of real estate as a physical asset declines, income-producing real estate with a higher proportion of 'income yield' (income from rental income) than 'capital yield' (profit from asset price changes) is known to be more attractive.

In fact, even in the contracted officetel market last year, ultra-small sales transactions remained steady. According to an analysis of actual transaction data from the Ministry of Land, Infrastructure and Transport by Real Estate R114, the number of officetel sales transactions nationwide last year was 41,176, a 34% decrease compared to the previous year (62,284 transactions).

However, looking at the number of transactions by exclusive area segment (year-on-year change compared to 2021), there were ▲543 transactions over 85㎡ (78%↓) ▲4,541 transactions over 60㎡ to 85㎡ (54%↓) ▲5,832 transactions over 40㎡ to 60㎡ (45%↓) ▲25,472 transactions over 20㎡ to 40㎡ (27%↓) ▲4,788 transactions under 20㎡ (12%↑). The larger the officetel area, the more the transactions decreased, whereas ultra-small officetel transactions actually increased.

As the transaction volume of ultra-small officetels increased, prices also rose. Last year, the price change rate for officetels under 20㎡ was 0.20%, up 0.15 percentage points from 0.05% in 2021. In contrast, officetels over 60㎡ to 85㎡ saw prices fall by 0.41%, marking the first decline since 2013 (-0.26%). The nationwide officetel price change rate also slowed to 0.38%, down 4.79 percentage points from 5.17% the previous year.

It is analyzed that ultra-small officetels, which are relatively less affected by market volatility, have successfully defended prices through steady transactions. Kyunghee Yeo, Senior Researcher at Real Estate R114, said, "As it has become difficult to expect capital gains through officetel investment, it seems that ultra-small units with high monthly rental yields are preferred."

Both Income Yield and Capital Yield Must Be Considered

However, experts emphasize that investing impulsively just because the income yield is high is a mistake. Considering capital yield together may ultimately lead to losses.

According to the Korea Real Estate Board, nationwide officetel monthly rents rose by 0.07% in the fourth quarter last year. They increased continuously throughout the year: 0.22% in Q1, 0.39% in Q2, and 0.47% in Q3. It is understood that there was a strong movement to raise monthly rents rather than jeonse deposits amid high interest rates. The yield was 4.84% nationwide. Daejeon had the highest at 6.99%, while Seoul had the lowest at 4.33% among the 17 metropolitan cities and provinces.

In 2021, the yield exceeded the average bank loan interest rate, making it advantageous to borrow to buy and rent out officetels. In March of the same year, the officetel yield was 4.77%, and the average loan interest rate was 2.77%, a 2 percentage point difference. By the end of the year, the gap narrowed to about 1.5 percentage points, but it was still possible to make a profit. However, in December last year, loan interest rates rose to 5.56%, making the profit structure unfavorable. It is necessary to examine product quality and liquidity more carefully.

Go Joonseok, CEO of J-Edu Investment Advisory, explained, "For example, if you invest 200 million KRW in an officetel and earn a monthly rent of 1 million KRW, achieving an annual yield of 6%, you would earn 36 million KRW in rental income over three years. However, if the officetel price drops by 50 million KRW upon disposal, you would ultimately incur a loss of 14 million KRW. This is why you should not invest based solely on income yield when investing in officetels."

He added, "Among ultra-small officetels, actual area often varies depending on the exclusive area ratio percentage, and the more units there are, the more likely community facilities are well-equipped. Therefore, these factors should also be considered when investing."

This content was produced with the assistance of AI translation services.