[2024 Financial Forum] "Korean Real Estate Business Must Undergo Major Transformation... Need for Demand-Centered and Diversified Approaches"

Jonghyun Park, Director of Nomura Research Institute Seoul

Jonghyun Park, Director of Nomura Research Institute Seoul, attended the '2024 Asia Financial Forum' held at the Chosun Hotel in Jung-gu, Seoul on the 9th and gave a lecture on the topic "Response Strategies for the Real Estate Market in the Era of Low Growth - Focusing on Japan." Photo by Jinhyung Kang aymsdream@

Jonghyun Park, Director of Nomura Research Institute Seoul, stated regarding the domestic real estate development industry facing a crisis due to the real estate market downturn and project financing (PF) loan defaults, "(Korea's real estate business) needs a major transformation," adding, "In a situation where zero economic growth is even forecasted, thorough preparation for demographic changes is essential."

On the 9th, at the '2024 Asia Financial Forum' hosted by Asia Economy held at the Westin Chosun Hotel in Jung-gu, Seoul, Park delivered a special session presentation titled "Response Strategies for the Real Estate Market in an Era of Low Growth: Focusing on Japan," stating, "Instead of the 'sold-out myth' where suppliers lead the market through massive supply and earn huge profits, going forward, businesses must diversify by commercializing new demand centered on consumers to build a stable revenue model."

Park noted, "Currently, domestic real estate developers and financial sectors say that unless land prices drop by 20-30% amid rising construction costs and declining consumer purchasing power, projects are not feasible," adding, "It is a dilemma, and many say it will take considerable time until the crisis turns into an opportunity."

He particularly mentioned that the external conditions surrounding the Korean real estate market are quite similar to Japan's in the 1990s when it was experiencing low growth and aging. Park said, "Compared to Japan in the 1990s, Korea in the 2010s shows upward trends in real wages, research and development, and facility investment, but total population, aging rate, and household consumption are deteriorating more rapidly."

Park also stated, "(Looking at Japan's case) in an era of low growth and aging, urban competition intensifies and polarization occurs. In advanced countries, 80% of the population is concentrated in cities," adding, "In such a polarized era, urban competitiveness cannot be resolved by the private sector alone; it requires joint responses from government, private sector, and consumers."

Therefore, Park emphasized that the domestic real estate industry needs to contribute to strengthening urban competitiveness beyond mere business feasibility and create new demand through this. He explained, "During former Prime Minister Shinzo Abe's administration, Japan enacted the 'Urban Regeneration Special Measures Law' and, after securing the '2020 Tokyo Olympics' in 2013, established the 'National Strategic Special Zones Law,' responding to urban regeneration for about 20 years," adding, "The Japanese real estate industry judges the success of real estate projects not by profitability but by how much they lead overall regional transformation through local booming."

Park said, "Because of this, the top five comprehensive real estate developers in Japan have maintained a stable annual sales growth of about 4%, regardless of real estate market changes such as the global financial crisis or COVID-19," emphasizing, "For example, they have diversified their portfolios by building business models that encompass development, ownership, leasing, and operation, rather than ending with project sales."

He also stressed the necessity of overseas expansion. Park noted, "Looking at Mitsubishi Estate's case, since the late 2010s, they have actively pursued overseas expansion beyond New York and London to Southeast Asia, with a strategy to increase overseas sales and operating profit ratios to 40-45% by 2030," adding, "The Japanese government and real estate industry have compiled and manualized their know-how of city development centered on history to actively appeal to overseas markets. In the future, developers, construction companies, and investors are expected to unite and drive overseas sales."

Park concluded, "Now, it is urgent to establish a Korea-specific business model through integrated national urban policies and advanced private sector operations," adding, "Even if it takes time, creating business models with the support of the public sector, private sector, and residents may be the fastest path."