[Real Estate Wealth Briefing] Preparing for Retirement, Time to Reconsider Officetel

Seoul Residential-Type Average Value 299.13 Million KRW, Lower Than Small Apartment Average
Less Attractive for Capital Gains Investment but Worth Considering for Monthly Rent Income

Small Officetels Completed from January to Next January Excluded from Housing Count
High Residential Satisfaction for Officetels Due to Increasing Single-Person Households and Proximity to Work in Seoul

The biggest concern for baby boomers approaching retirement is securing a stable old age. How wonderful would it be to generate steady income even as one grows older? This worry is not limited to those in their 50s and 60s nearing retirement; it is also a topic of great interest for those in their 30s and 40s with surplus funds. This is why there are many inquiries about income-generating real estate that provides a fixed cash flow in the property market. In particular, officetels, which can be purchased more affordably than apartments or multi-family housing and can generate monthly rental income, are a product that many have likely considered as a revenue asset after retirement.

According to KB Real Estate, as of last month, the average price of residential officetels in Seoul was 299.13 million KRW. This is lower than the average prices of multi-family housing (328.98 million KRW) and small apartments (752.85 million KRW). Currently, officetel prices are on a downward trend. The decline in the officetel market began after 2020. Due to strengthened regulations on multi-homeowners, the abolition of benefits for rental business operators, and stricter obligations, officetel prices have dropped sharply. At the same time, interest rates began to rise. With little expectation of capital gains from rising officetel prices and rental yields also falling from relatively high levels, the investment appeal has diminished.

However, a closer look reveals that not all investments have lost their appeal. Let’s examine the price trends by officetel size. Since small officetels, considered substitutes for urban lifestyle housing or multi-family rental homes, and large officetels, which serve as alternatives to apartments, have different characteristics, their price trends should be viewed separately. Large officetels (exclusive area over 85㎡), also known as ‘Apartel,’ which once replaced apartments, have seen significant price declines.

On the other hand, prices of ultra-small (exclusive area 30㎡ or less) and small (exclusive area over 30㎡ up to 40㎡) officetels, which were often purchased for rental income, have not fallen as much. For officetels in the Seoul metropolitan area, the rental yield for ultra-small units has steadily increased from 5.04% in October 2021 to nearly 6% in April 2024. During the same period, large officetels saw a modest rise from 3.16% to 3.40%.

It is true that investing in officetels for capital gains is not very attractive. Nevertheless, ultra-small and small officetels are worth considering as income-generating products that can provide stable monthly rental income or as part of diversified asset management. According to the government’s 1·10 real estate measures, newly constructed small officetels with an exclusive area of 60㎡ or less, completed between January this year and December next year, are excluded from the count of houses when calculating acquisition tax, capital gains tax, and comprehensive real estate tax. Along with these tax benefits, there is also the possibility of interest rate cuts. Additionally, due to concerns about jeonse (long-term deposit lease) fraud, tenants increasingly prefer monthly rent over jeonse.

While future policy changes related to officetels remain challenges to be addressed, there is significant potential for officetel rents to rise in the near term. With the increase in single-person households and high residential satisfaction for officetels equipped with full options such as refrigerators and washing machines in locations close to workplaces in Seoul, it is time to once again pay attention to competitively priced, newly built small officetels near subway stations for stable management of retirement assets and portfolio diversification.