Korea's private rental housing market shows high growth potential as monthly rental transactions increase.
U.S. real estate giants with strong capital reserves are eyeing this market.
Morgan Stanley to enter the rental housing business in Gangdong District, sparking interest in the real estate investment industry.
However, for Korea's construction industry, which focuses on sale-based projects, this remains a distant prospect.
Global Real Estate Giants Eyeing Korea's Rental Housing Market
U.S. real estate giants are setting their sights on Korea's private rental housing sector. Following the announcement by Hines, a U.S. real estate firm managing $93 billion (approx. KRW 132 trillion) in assets, of its entry into Korea's rental housing market, JLL (Jones Lang LaSalle), another major player managing $89 billion (approx. KRW 127 trillion) in assets, is reportedly exploring opportunities in the same space.
JLL, founded in 1978, operates in over 80 countries with 300 offices worldwide. Since its establishment in 2000, JLL Korea has provided real estate services with a team of around 400 experts. Historically, the company focused on commercial real estate, such as office buildings and shopping malls in Korea. However, with the Korean government opening up the "corporate-type long-term private rental housing" market as a new form of housing supply, JLL is preparing for market entry.
Korea's New Corporate-Driven Rental Housing Policy
The Ministry of Land, Infrastructure, and Transport recently introduced "corporate-type long-term private rental housing" as a new housing supply model. The government plans to finalize the enforcement ordinance within the year, recruit operators from next year, and supply 100,000 units by 2035.
This policy has attracted not only real estate developers but also investment firms interested in Korea's rental housing market. Morgan Stanley, for example, plans to collaborate with domestic operator SL Platform (SLP) to manage a mixed-use building in Gangdong District, Seoul, as a private rental housing project starting next year. Additionally, UK-based real estate investment firm M&G Real Estate has announced plans to expand its rental housing investments in Korea.
A local real estate investment industry insider stated, "With the growing interest of global institutional investors in Korea's rental housing market, long-term investment and increased market participation are expected. In this context, rental income, alongside capital gains, is becoming a key consideration for investors."
Rising Monthly Rentals and Expectations for Premium Rental Housing
The increased interest in Korea's rental housing market is driven by two factors: the government's recruitment of new market participants and the growing share of monthly rental transactions in the housing market.
According to KB Real Estate’s monthly housing price statistics, the monthly rent price index for Seoul apartments in October reached 117.9, the highest since the index was first introduced in December 2015.
A representative from Hines explained, "Although Korea has traditionally preferred the 'jeonse' system, the trend is shifting toward monthly rentals due to risk management considerations. We see strong growth potential in Seoul’s rental housing market and aim to leverage our global expertise in the U.S. and Europe to create community-focused living spaces in Korea, similar to our projects in Japan and Australia. Increased institutional investment in Korea's rental housing sector will help expand housing supply and improve housing affordability."
Experts expect the emergence of "high-end" monthly rental markets facilitated by global real estate firms.
Lee Eun-hyung, a researcher at the Korea Research Institute for Construction Policy, noted, "When large companies lead rental housing projects, tenants will enjoy higher-quality services and greater convenience. Additionally, since private rentals allow for annual rent increases of up to 5%, the business model provides sufficient profitability to attract market participants."
Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, commented, "With the rise of 1-2 person households, new rental housing products tailored to these trends are expected to emerge. The entry of foreign firms could drive competition and improve product quality."
Challenges for Korea’s Construction Industry
Despite the potential growth of Korea's rental housing market, it poses challenges for domestic construction firms, which primarily focus on sale-based projects. Sale-based projects allow companies to recoup construction costs immediately, whereas rental housing requires capital to be tied up for decades, making it less feasible under current conditions.
Ham Young-jin explained, "Korean developers and construction firms mainly focus on sale-based projects, except for limited private rental housing within designated land development areas. The expansion of domestic private rental housing initiatives will likely unfold over the medium to long term."
Industry insiders echoed this sentiment, stating, "For domestic construction companies, recovering construction costs through sales is critical. Since rental housing ties up capital for extended periods, engaging in the rental market under current conditions is impractical. To compete with U.S. firms, regulatory adjustments, such as easing rent controls, acquisition tax surcharges, and comprehensive real estate holding tax, are necessary."
Conclusion: Korea's rental housing market presents both opportunities and challenges. While foreign investment is expected to enhance the quality and diversity of rental housing products, domestic firms may need regulatory support to participate competitively. As global interest in Korea’s rental housing sector grows, the market is poised for significant transformation.
Stay updated with daily news and insights on real estate! Don’t forget to like, comment, and subscribe 😊
