Offshore big shots tap into Seoul’s rental housing

Global real estate asset managers and capital are gearing up for a bite of Seoul’s rental housing market, which has been undergoing a transformation since the country’s housing security has come under stress for its distinctive rent-free “jeonse” system.

The recent revelations of numerous housing rental scams have accelerated the country’s shift from its unique jeonse system, under which tenants put up a large refundable deposit to the landlord in lieu of monthly rent payments, typically for a two-year rental period.

Instead, the market has been moving toward the more globally familiar monthly rental market. Land Ministry data shows over 50 percent of rental transactions made for tenement and multifamily housings in Seoul last year were monthly rental deals, the highest since the ministry started to release compiled data from 2011.

The shift is expected to drive up the prices of rent, luring influential real estate asset managers and capital from overseas to bet on the growth.

One of the household names currently on the way to expand its portfolio here is the US-based real estate investment manager Hines.

The real estate giant operates $93 billion over 30 countries. Though its engagements here, which amount to $2 billion, have been more concentrated oin the commercial real estate sector, it purchased a mixed-use property in the Sinchon area of western Seoul.

“In South Korea, the ownership of rental properties is fragmented, with relatively few properties institutionally built, owned and managed. Given the current market fundamentals and supply-demand dynamics, Hines sees opportunities in Seoul’s multifamily market,” a company spokesperson said.

US investment bank Morgan Stanley joined hands with local developer SK D&D to invest in a rental housing property. The bank has invested in a 195-unit housing property in Geumcheon-gu, western Seoul, with SK D&D’s affiliate D&D Property Solution and Gravity Asset Management.

“The development project is currently underway to gain approval from the authorities,” an official from SK D&D said. “Morgan Stanley was not a firm with a major focus on investing in residences here. It would be the first time for SK D&D to co-invest in a residential property with Morgan Stanley.”

The government is fueling the proliferation of institutionalized rental housing to shake up the country’s rental housing market, which has been dominated by a person-to-person system.

With over 60 percent of rental contracts consisting of transactions made between individuals, the local home rental market has been plagued by faulty transactions such as delays in guarantee returns and sometimes fraud.

In response, the government introduced a set of measures in August encouraging corporations to enter the home rental market -- such as allowing real estate investment trust managers, developers and insurers to operate rental homes -- ensuring 20-year and greater leases.

“The Korean government has announced plans to encourage institutional investment in the multifamily market,” the Hines spokesperson said.

“This move acknowledges the need to address housing shortages, while presenting Hines with an opportunity to leverage its global expertise in creating community-centric living spaces and help meet the demand for quality housing in South Korea.”

Market insiders project more foreign hands to seek lucrative opportunities in the rental housing market here, as Seoul’s rent prices are expected to soar as they remain relatively lower than its peers.

“The government has been working to invigorate the rental housing scene as tenants are concerned about fraud. With the wave, more foreign capitals have been showing interest in the market,” an official from a local developer said.

“Considering the rental housing market is much bigger in other foreign metropolises in terms of size and price, it is a change that was bound to happen.”