"They Are Selling Fast": Officetels Become Highly Sought-After... Benefiting from Real Estate Measures [Real Estate AtoZ]

Seoul Officetel Price Index Rises for 9 Consecutive Months
Largest Monthly Gain of the Year in October
October Transaction Volume Up 11% from Previous Month
70% of Deals Concluded After New Measures
High-Priced Units (Over 300 Million KRW)

Following the October 15 real estate measures, the Seoul apartment market has rapidly frozen, while the officetel market, which remains outside the scope of these regulations, is benefiting as a result. This stands in stark contrast to the apartment market, which is facing a "transaction cliff" due to regulatory constraints. With not only existing rental investment demand but also end-users entering the market, officetels are increasingly seen as both an investment destination and a substitute for apartments.

Exclusive 102㎡ unit in Jayworldville, Yangcheon-gu, has increased by 130 million KRW in just four months. Gigi Auction.

According to the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system, the number of officetel transactions in Seoul last month totaled 937, up 11.1% from the previous month (844 transactions). Compared to the same month last year (857 transactions), transactions also increased. In the second half of this year, officetel transactions stood at 996 in July, remained at 844 in both August and September, and rebounded last month. Considering the reporting deadline for actual transactions (within 30 days of the contract date), the actual number of transactions is expected to approach 1,000.

According to KB Real Estate, the officetel sale price index in Seoul last month was 124.57, up 0.91% year-on-year. This marks the largest monthly increase so far this year and is close to the all-time high of 125.85 recorded in October 2022. It is also the ninth consecutive month of increases. The average sale price for the month was 304.18 million KRW, nearly reaching the previous peak of 305.48 million KRW three years ago.

Since the October 15 measures, officetels have become even more sought after. Of the 937 transactions last month, 663 (70.7%) were concluded after the announcement of the measures on the 16th. Only 274 transactions occurred between the 1st and 15th of the month. Thus, transactions nearly doubled following the measures. In contrast, apartment transactions plummeted from 4,939 in the 15 days prior to the measures to 1,189 in the 15 days after, a 76% decrease. The total number of apartment transactions also dropped by 31%, from 8,870 in September to 6,128 in October.

Whether or not regulations apply has created a clear divide in transaction trends by housing type. Officetels are classified as "quasi-residential" under the Building Act, so they are largely exempt from the various regulations that apply to apartments and other residential properties. Officetels are not subject to land transaction permit zone regulations and have no requirements for actual residence or move-in. The loan-to-value (LTV) ratio remains at 70%, and the stricter loan limits introduced in the June 27 and October 15 measures do not apply. Furthermore, owning an officetel does not disqualify buyers from being considered "without a home" for apartment subscription purposes, which is attractive to end-users.

Yang Jiyeong, Senior Specialist at Shinhan Premier Pathfinder, analyzed, "It is clear that younger people, whose access to apartment loans is blocked, are choosing officetels as alternative residences near their workplaces. The rise in monthly rent demand, following the impact of rental fraud, is boosting rental yields, which is drawing investment demand back into the market." In fact, the average rental yield for Seoul officetels in October was 4.82% (according to KB), marking 38 consecutive months of increases.

There is evidence of not only investment activity but also an influx of end-users. The proportion of mid- to high-priced officetel transactions exceeding 300 million KRW reached 42.9% last month, the highest monthly share this year. In September, the figure was 31.2%, and the cumulative average from January to October was 34.2%. Ham Youngjin, Head of Real Estate Research Lab at Woori Bank, explained, "Transactions below 300 million KRW are mostly for rental income. However, transactions above that threshold indicate a genuine influx of demand as an apartment substitute."

Record-high transaction prices are also being reported in individual complexes. In Yangcheon-gu, a 102㎡ unit in Jay Worldville was sold for 1.3 billion KRW last month, up 130 million KRW from the previous record high of 1.17 billion KRW set in June. In Gangseo-gu, two 42㎡ units in Hillstate Eco Magok Station were sold for 450 million KRW each following the new measures, surpassing the previous record of 433 million KRW set in 2019 after six years.

While demand is rising, supply is rapidly shrinking. According to Real Estate R114, the number of officetel units scheduled for occupancy in Seoul is projected to be 4,456 this year and 1,417 next year. This is significantly lower than the average of 17,000 units per year over the past decade.

Experts believe that liquidity may continue to flow into the officetel market for the time being, but they advise caution against chasing the market. Kim Hyosun, Chief Real Estate Specialist at NH Nonghyup Bank, pointed out, "Officetels are virtually impossible to reconstruct or redevelop, and they have structural limitations in terms of liquidity. If the location is not favorable, it will be difficult to expect future capital gains." Ham Youngjin also emphasized, "This is a temporary phenomenon where demand is flocking to a niche market to avoid regulations. Since apartments remain at the center of the residential market, it is advisable to avoid excessive purchases."