“Foreign investors compare the private rental housing market in Korea to the rental housing market in Japan 20 years ago, calling it a 'blue ocean.'”
Im Chae-wook, representative of GH Partners, said on the afternoon of the 26th during the 72nd luncheon open seminar of the Seoul Real Estate Forum held on the 2nd floor of the D&O Gangnam Building in Gangnam, Seoul. He presented on the topic, 'Understanding the rental housing market: New opportunities in Korean real estate,' discussing recent trends and prospects in the rental housing market.
Representative Im noted that, although there are corporations operating registered rental housing that are registered as housing rental management businesses, they account for only about 6% of the total registered rental housing (1,392,000 units) or 84,000 units. He said that while domestic corporate investors are interested in the private rental housing market, there is a prevailing sentiment not to invest, fearing potential complications, such as audits due to the image of making money from rent.
Representative Im assessed that demand for quality rental housing managed directly by trustworthy corporations or institutional investors is expanding, indicating substantial interest from foreign capital in the Korean rental housing market.
He said, "Foreign investors perceive that in Japan, large corporations with excellent real estate expertise, such as Mitsubishi, have already dominated the rental housing market, making competition fierce and profitability low." He added, "Foreign corporations that have already invested about 70-80% of their total assets in Japanese rental housing funds aim to recover by investing the remaining 20-30% in Australia or Korea due to below-expected performance compared to their original internal rate of return (IRR) targets."
Representative Im said that while Japanese rental housing investment funds set their IRR target at 10%, the target for Korea is around 15-20%. He added, "The laws related to private rental housing are still lacking, and there is considerable interest in the Korean rental housing market, which is relatively easier to enter compared to Japan and Singapore in Asia."
He explained that interest from foreign investors in the rental housing market is increasing due to structural changes in population decline and aging in Korea.
According to Statistics Korea, the total population in Korea peaked at 51.84 million in 2020 and has been decreasing since 2021 (51.77 million) to last year (51.75 million). It is projected to decrease to 47.11 million by 2050. In contrast, the total number of households is expected to continue increasing until 2040. The number rose from 21.28 million in 2021 to 22.08 million last year and is expected to reach 23.87 million by 2040.
The elderly population in Korea is also rapidly increasing, with projections indicating that by 2050, those aged 65 and older will account for nearly one-third of the total population. The number of elderly individuals aged 65 and over was 8.15 million, constituting 15.7% of the population in 2020, but is projected to double to 18.15 million, or 40.1%, by 2050. Conversely, the population of working-age individuals aged 15-64 is expected to decrease from 37.38 million (72.1%) in 2020 to 24.45 million (51.9%) by 2050, a drop of 20.2 percentage points.
Representative Im observed that there is an increasing need for optimized housing types reflecting the rapid growth in demand for single-person households and childless couples.
He stated, "Despite the deepening population decline and aging, the number of single-person households and childless couples will continue to increase," adding, "The birth rate is continuously decreasing, leading to a rapid decline in households raising children."
He further noted, "The preference of the unmarried for independent living, the increase of foreigners settling in Korea, and the spread of single-person households among middle-aged individuals due to divorce or separation are driving rental demand," adding, "Especially among the retired middle class, there is a significant increase in interest in convenient and safe senior dwellings."
Representative Im explained that the rental method in Korea is changing from a focus on jeonse (lump-sum lease) to a focus on monthly rents. While many tenants still prefer jeonse, there is an increasing demand for relatively safer monthly rents due to concerns over the risk of deposit non-refund.
According to the nationwide housing occupancy rates by age group presented by Statistics Korea, the ratio of those residing in jeonse or monthly rental decreases as age increases, but the proportion of monthly rent relative to jeonse continues to rise. Among single-person households, monthly rent accounts for the largest proportion at ages 29 and below (64.1%), 30s (45.6%), 40s (45.4%), and 50s (43.1%).
Representative Im explained that the market for built-to-rent (BTR) rental housing that provides tailored leasing services for consumers of various age groups in the single-person household rental market will also grow.
Im Chae-wook noted that cooperation between foreign investors and domestic rental housing specialty corporations is becoming active, and there is a significant possibility that private rental housing will become a new investment area for existing commercial real estate, stating, "This signals the structural changes and new growth momentum in the Korean real estate market."
He emphasized that the success factors of the private rental housing business are location, quality (finishing), reasonable rent, and safety, stating, "Even if the location is good, such as Gangnam, operating rental housing by raising rents through extravagant amenities in areas where land prices are too high is not as favorable as setting reasonable rents in places like Nowon or Mapo, where traffic accessibility is good and land prices are not that high."
GH Partners is a company specializing in the management of built-to-rent dwellings. It operates and manages rental housing with a scale of 19,000 units across 41 assets nationwide, including apartments, officetels, urban living houses, and single-family homes.
The Seoul Real Estate Forum is a purely non-profit organization composed of real estate industry stakeholders involved in real estate development, finance, marketing, and asset management, as well as professors from related academic fields and legal, accounting, and appraisal experts.