South Korea Real Estate Report Q3 2011

South Korea’s economy is recovering well with 2010’s full-year real GDP growth figure coming in at 6.1%. However, seasonally-adjusted growth cooled for the third straight quarter in Q410. BMI is expecting real GDP growth to slow to 4.0% in 2011, missing the government's 5.0% target, on the back of inflationary headwinds and weaker investment growth.
The South Korean housing market went through a slump in Q310, prompting the government to introduce a series of supportive measures. BMI expects the housing sector to recover this year, which would in turn help shore up consumption growth. Indeed, recent indicators have been encouraging, with home transaction volumes and prices showing signs of improvement in Q410.
THE K-REIT sector in South Korea was generally quiet in the first half of 2010 as the Korean real estate investment market was essentially stagnant. However sentiment improved slightly in the second half of the year with the successful float of two new REITs and moves by the Cabinet Council to change amendments to the Korean REIT Act to stimulate the market. The current government is also undertaking a deregulation drive, led by ex-corporate CEO, President Lee Myung-bak, in an effort to attract more and more investment. Reforms include changes to taxation that allows landlords to more easily access the capital value of their property.
In early 2010, our in-country sources indicated that developers in Seoul and Daegu had maintained a broad balance between supply and demand of commercial property, but that in Busan, much more like in many other countries, there had been some over-supply and subsequent rental cost falls. By the end of 2010, we were still seeing falls in rental rates for office space in Busan but also in Seoul. Looking forward, our sources are reasonably optimistic, as they envisage that rental rates will at worst move sideways (and more likely increase slightly) throughout both 2011 and 2012.
Rental growth in the commercial sector has been assisted by a strong economy and growth in the financial sector and the R&D sectors in South Korea. The issue for the Seoul commercial sector is the new supply which will come on in 2011. This includes Mirae Asset Tower and Signature Towers, two twin 17-story office buildings featuring 100,000 square meters (1,076,000 square feet) of new space.

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Executive Summary . 5
SWOT Analysis 6
South Korea Real Estate SWOT . 6
South Korea Economic SWOT 7
South Korea Business Environment SWOT .. 8
Real Estate Market Overview .. 9
Key Issues . 9
Table: South Korea’s Real Estate Market – Historic Rents, 2009 And 2010 (m2/month, US$) . 10
Table: South Korea’s Real Estate Market – Net Yields, 2010 And 2011 (%) . 10
Table: South Korea’s Real Estate Market – Terms Of Rental Contract/Lease, Mid-2010 .. 11
Table: South Korea’s Real Estate Market – Available And Vacant Space, Mid-2010 (m2, unless stated) 11
Industry Forecast Scenario 12
Real Estate Outlook .. 12
Table: South Korea’s Real Estate Market – Rentals, 2010-2012 (m²/month, US$) . 13
Table: South Korea’s Real Estate Market – Forecast Net Yield, 2008-2015 (%) . 14
South Korea’s Construction Industry Outlook . 15
Table: South Korea Construction And Infrastructure Industry Data . 15
Table: South Korea Construction And Infrastructure Industry Data . 16
Macroeconomic Outlook . 20
Table: South Korea – Economic Activity, 2007-2015 .. 22
Business Environment 23
Real Estate/Construction Business Environment Ratings .. 23
Table: Asia Real Estate/Construction Business Environment Ratings .. 23
South Korea’s RECBER .. 24
Project Finance Ratings: Asia Pacific . 25
Table: Design And Construction Rating . 27
Table: Commissioning And Operating Rating . 29
Table: Overall Project Finance Rating 30
South Korea’s Business Environment .. 31
Table: BMI Business And Operation Risk Ratings . 31
Table: BMI Legal Framework Rating .. 33
Table: Labour Force Quality 38
Table: Asia, Annual FDI Inflows 40
Table: Trade And Investment Ratings .. 42
Table: Top Export Destinations .. 44
Competitive Landscape .. 46
Company Monitor 47
GS Engineering & Construction Corporation.. 47
Samsung Engineering & Construction . 48
Golden Narae Real Estate Development Investment Trust . 49
Kocref REIT 7 .. 50
SK Engineering & Construction . 51
BMI Methodology 52
How We Generate Our Industry Forecasts 52
Construction Industry .. 53
Bank Lending 54
Real Estate/Construction Business Environment Rating . 54
Table: Weighting Of Indicators .. 55
Project Finance Ratings Indicators .. 57
Table: Design And Construction Phase .. 57
Table: Commissioning And Operating Phase – Commercial Construction 58
Table: Commissioning And Operating Phase – Energy And Utilities 59
Table: Commissioning And Operating Phase – Transport . 60
Sources 61
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