Officetels Also Stagger Due to COVID-19... Negative Growth in Gangbuk Area

Han River South Sales Price Index Rises While Gangbuk Area Turns Down
Properties Several Hundred Million Cheaper Traded, Monthly Rent Conversion Rate Drops to 5%
Yield Also Lowest at 4.83% Annually... Reduced Lease Demand from Travel and Tourism SMEs

[Asia Economy Reporter Donghyun Choi] Price decline signals are being detected in the officetel market following apartments. Prices in the area north of the Han River (hereinafter Gangbuk area), which had solid demand due to proximity to downtown, have also turned negative. The real estate market contraction caused by the COVID-19 pandemic is spreading to officetels.

According to the Korea Appraisal Board's 'Officetel Price Trend Survey' on the 6th, the Seoul officetel sales price index rose 0.01% month-on-month last month, continuing an upward trend for nine consecutive months. However, when looking only at small officetels under 40㎡ (exclusive area) in Seoul, prices fell 0.02% last month, marking a decline for the first time in nine months. The gap is even more pronounced by region. While the index rose in the southern Han River areas such as the southwest and southeast (hereinafter Gangnam area), the Gangbuk areas including downtown, northeast, and northwest turned to a decline after 7 to 10 months.

In fact, recently, officetels in the Gangbuk area have been traded at prices several tens of millions to hundreds of millions of won lower than market prices. For example, a 252.7㎡ (exclusive area) unit in 'Lotte Castle President' in Gongdeok-dong, Mapo-gu, was sold for 1.74 billion won on the 9th of last month, but a unit of the same size was traded for 1 billion won less at 1.64 billion won on the 20th of the same month. In Yongsan-gu, Han-gangno 2-ga, 'Raemian Yongsan The Central' saw a 71.71㎡ unit sold for 1.05 billion won on the 2nd of last month, while a larger 77.55㎡ unit was traded for 855 million won on the 28th, showing a wide price fluctuation. A representative from real estate agency A in Mapo-gu said, "There is still strong jeonse demand in complexes with excellent access to subway stations and workplaces, but sales demand has significantly decreased," adding, "If the location is not close to a subway station, price adjustments tend to be steep."

The jeonse-to-monthly rent conversion rate also dropped to 5%, the lowest level since the Korea Appraisal Board started compiling this statistic in 2018. The jeonse-to-monthly rent conversion rate is the annual interest rate applied when converting a jeonse deposit to a semi-jeonse or monthly rent. For example, a 5% conversion rate means that a landlord who converts a 100 million won jeonse deposit officetel into a monthly rent without a deposit expects to receive 5 million won annually (about 416,600 won per month).

The yield also remained flat for four months at 4.83% last month, the lowest level since statistics began. The officetel yield announced by the Appraisal Board is the 'income yield,' calculated by dividing the total annual monthly rent by the sales price minus the deposit. This calculation does not consider gains from land and building price appreciation.

The jeonse price ratio, which is the ratio of jeonse price to sales price, has been steadily rising since January last year, reaching 79.55%. In the case of officetels, over 90% of listings are monthly rent, making listings scarce. Due to the recent housing market downturn, jeonse demand has increased, causing jeonse prices to approach or even exceed sales prices, resulting in many 'empty jeonse' cases. However, the recent rate of jeonse price increase has been gradually slowing. Last month, the Seoul officetel jeonse price index rose 0.05% month-on-month. The monthly increase rate of the Seoul officetel jeonse price index has declined for four consecutive months: 0.16% in December last year, 0.14% in January, 0.09% in February, and 0.08% in March. Nationwide, the officetel jeonse price index turned to a decline last month for the first time in eight months. Hyuntaek Cho, a research fellow at the Commercial Information Research Institute, said, "Many small travel and tourism companies or small businesses rent officetels for their operations, but demand has significantly decreased due to COVID-19," adding, "Price differences between areas close to business districts and those farther away will become more pronounced."

This content was produced with the assistance of AI translation services.