[Viewpoint] Conditions for "Productive Real Estate"

Perceptions of "Real Estate as Speculation" Hinder Development

Need to Find Ways to Attract Venture Capital Investment

The Association of Real Estate Developers recently held a workshop for its members to discuss the formation of an industrial infrastructure development fund. While the session did not yield any concrete solutions, it reflected the deepening concerns within the developer industry regarding the productive role of real estate.

Developers, in essence, enhance the value of real estate by developing land. They maximize land utilization by constructing appropriate buildings that consider the surrounding environment. However, practical challenges such as methods for fund formation and management remain unsolved, so the workshop merely served as an initial discussion on these issues.

The industry's more fundamental concern is likely the external perception that "real estate is speculation." The government has been emphasizing productive finance and is raising its voice about blocking capital from flowing into real estate. While it is necessary to secure funding for real estate development, it has become increasingly difficult to seize crucial financial opportunities.

The biggest obstacle to "productive real estate" is the apartment-centered atmosphere in the real estate market. From April of last year to March of this year, apartments accounted for more than 78% of all housing transactions. Apartments are already being treated as "quasi-currency," meaning they have the liquidity of cash. The more liquid an asset becomes, the more capital tends to flow into it.

Although the government is introducing strong regulatory policies on real estate, apartments still overwhelmingly dominate the domestic real estate market. Even with the stock market boom leading to a "money move" phenomenon where capital shifts from real estate to equities, the reality is that the amount of money being withdrawn from the stock market to purchase homes is also gradually increasing. According to the housing finance plans compiled by the Ministry of Land, Infrastructure and Transport, the proportion of funds to be secured by selling stocks and bonds when purchasing homes priced between 1.2 billion and less than 1.5 billion won rose from 1.7% in 2020 to 5.7% in March of this year. For homes priced at least 1.5 billion won, this figure increased from 3.2% to 9.0% over the same period. This suggests that even with alternative investment destinations like the stock market, interest in apartments and other housing remains strong.

As a result, sectors that "increase productivity"—such as data centers, eco-friendly energy facilities, and office buildings—are being neglected. Despite the attention data centers have received amid the artificial intelligence (AI) boom, the sector no longer appears to have growth potential. Small-scale "data center edge" projects, which could be built in urban areas, quickly lost momentum after a brief surge. This is partly due to strong opposition from nearby residents, but also because securing funding is not easy. Office buildings also vary widely in value depending on size and location; office buildings along Gangnam-daero have no vacancies and prices are rising, while those located further inside see little demand. Given this volatility, it is difficult to jump into development without caution.

A real estate developer I recently met said, "It's hard to find business opportunities in Korea." This is because residential projects that attract capital are largely reserved for public development, leaving little room for private developers, while businesses like energy development come with significant risks. He added, "We are looking for opportunities to collaborate with construction companies and pursue projects overseas."

Historically, it was real estate such as land that opened new horizons in finance. The idea that land possessed value equivalent to gold was what fueled the growth of finance. Today, the situation has completely reversed. In order to make real estate productive, finance is essential. However, perceptions of real estate within the financial sector remain largely unchanged.

Venture capital investment is not applicable only to startups. Utilizing land more effectively is also clearly a means to enhance productivity. The task of increasing the productivity of real estate does not rest with developers alone.