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South Korea’s 10 year journey to institutional status

2 July 2018

South Korea’s real estate market has rapidly matured over the past decade and overseas interest continues to increase.

The recent peace summit between US president Donald Trump and North Korea’s Kim Jong-un has further boosted confidence, especially amongst foreign investors.

Koichiro Obu, head of research and strategy, Asia Pacific, at DWS, says: “The aggregate size of institutionally held assets has expanded sixfold over last ten years to 2017. It is now the fifth largest in the Asia Pacific region for invested stock and transaction volumes, and has become one of the most important core positions in the regional real estate portfolio for many international investors.”

However, Obu notes that, due to a lack of sizable listed REITs or listed developers, the South Korean real estate market is less transparent than than other core markets in the region. The institutional real estate sector – around 20% of total investable assets – is evenly split between private REITs and private funds, DWS estimates.

In contrast, Japan has 40% of its investable real estate in REITs, funds and listed developers, while the US has 44% of its investable real estate in institutional hands.

JoAnn Hong, head of research, consultancy and valuation, at Savills Korea, says: “The Korean market experienced record volumes of US$12bn and 34 transactions involving foreign capital in 2017, led by the Seoul office market. The continued development of domestic investor strategies has also acted as a demand driver, with more and more groups offering blind funds, value-add strategies and sector diversification.

“Furthermore, the emergence of securities companies as active players in the market continues to provide an additional source of liquidity.”

Hong also believes that the thawing of relations between North and South Korea will boost investment. “The atmosphere in Seoul these days feels little different than days gone by; however it would be downplaying the situation to deny that a new found confidence has arisen in response to the latest developments.

“A change in sentiment will have certainly made life easier for the large number of GPs looking to deploy foreign capital in South Korea. Those seeking to make acquisitions have long been aware of the merits of the country’s real estate market, but in many cases have had to work hard to alleviate the concerns of their LPs around the globe. Savills estimates that over 70 foreign investors are already invested in South Korea and there are now over 30 looking to buy.”