Gave Up a 500 Million Won Apartment for a 200 Million Won Officetel... Yield Hits 9-Year High

With the government tightening regulations on apartment loans and prices for small apartments soaring, the officetel market in the Seoul metropolitan area is seeing a spillover benefit. Not only has the yield reached its highest level in 8 years and 10 months, but transaction volumes are also up compared to last year. As a result, residential officetels are regaining attention as both an alternative to small apartments and as income-generating real estate.

According to data from Korea Real Estate Board on April 19, nationwide officetel sale prices in the first quarter of this year fell by 0.41% compared to the previous quarter, but in Seoul they rose by 0.23%. The larger the unit size, the steeper the increase. Data from KB Real Estate shows that last month, the sales price index for large officetels (with an exclusive area of more than 85 square meters) in the metropolitan area rose by 4.68% year-on-year, marking an 18-month streak of increases. Record-high prices are being set in major complexes, including a 137-square-meter unit in ‘Hyundai Hyperion’ in Mokdong trading at 3.18 billion won, and a 77-square-meter unit in ‘Raemian Yongsan The Central’ in Yongsan trading at 1.55 billion won.

Indicators for both transaction volume and yield are on the rise. According to the Ministry of Land, Infrastructure and Transport’s real transaction price disclosure system, the number of officetel transactions in the metropolitan area in the first quarter reached 7,383, a 5.09% increase compared to the same period last year. Based on KB Real Estate statistics, the yield for metropolitan area officetels in March was 5.32%, the highest since May 2017, or 8 years and 10 months. By region, Incheon had the highest yield at 6.39%, followed by Gyeonggi at 5.52%, and Seoul at 4.89%. Incheon recorded its highest yield in 8 years and 10 months, Gyeonggi in 9 years and 1 month, and Seoul in 8 years and 4 months, respectively. The trend of monthly rents replacing lump-sum deposits has also strengthened the income base, with monthly rents for Seoul officetels rising 0.75% quarter-on-quarter.

A notice about one-room rental is posted at a brokerage office in Dongjak-gu, Seoul. Photo by Jinhyung Kang

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This trend is interpreted as the result of spillover effects from the concentration of regulations on apartments combined with price competitiveness. Due to last October’s 10·15 measures and the implementation of phase 3 of the Stress Debt Service Ratio (DSR), the threshold for buying apartments has risen. In contrast, officetels, classified as non-residential, are subject to a 70% Loan-to-Value (LTV) ratio and have no requirements for actual residence or submitting a financing plan. According to KB Real Estate, as of March, the average sale price of small apartments (exclusive area of 60 square meters or less) in the metropolitan area hit an all-time high of 558.35 million won, whereas the average officetel price was 274.04 million won-about half that amount.

On the supply side, officetels are becoming increasingly scarce. According to Real Estate R114, the number of officetel units scheduled for occupancy nationwide this year is 11,762, the lowest in 16 years since 2010. Improved residential satisfaction is also driving demand. Officetels are mainly located in downtown commercial zones, offering excellent access to public transport and commercial facilities. A survey by the Korea Developer Association showed that overall satisfaction with officetel living scored 3.14 out of 4, surpassing apartments at 3.12.

A real estate industry official commented, "In the past, officetels were regarded as a product to avoid when yields dropped, but now, with floor plans suitable for actual residence, they are solidifying their identity as apartment alternatives. The popularity of officetels is likely to continue for the time being."

However, there are also warnings against excessive expectations. Unlike apartments, it is difficult to expect value appreciation through reconstruction, and the burden of property taxes and other holding costs is relatively high, which may limit continued price increases. If speculative demand flows in excessively in the future, the government may expand regulatory targets, so experts advise that investors should not approach simply based on yield.

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