Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Global financial firms turn to housing market for single-person families in Korea
High-rise officetels, a popular form of housing for single-person households, are seen in Hanam, Gyeonggi Province in this undated photo. Korea Times file
By Yi Whan-woo
Market turns lucrative as more Koreans live alone and demand grows at steeper pace
Global investment banks, asset management companies and other financial enterprises are increasingly showing interest toward homes for single-person households in Korea as more Koreans live alone and their housing demand is growing at a steeper pace.
“In the commercial property market, these large companies from abroad mainly focused on corporate offices as they were lucrative,” Kwon Dae-jung, a real estate professor at Sogang University, said. “And the fact that they are eyeing homes for people who live alone suggests that the single-person household market is becoming more profitable than ever."
The professor pointed out that multinational financial firms are interested in the market because housing contracts are shifting from “jeonse” to monthly rent.
A dominant property rental system in Korea, jeonse is based on a lump sum deposit a tenant pays to their landlord at the start of a rental contract.
Tenants get the money returned to them with no interest when the contract expires, typically after two years, with the imputed interest considered as rent.
For those who rent homes, jeonse was considered less effective in getting instant returns than a monthly contract.
Under the circumstances, more single-person households have been shifting to monthly contracts as many of them can’t secure a large sum of money as required in jeonse.
In addition to the changing trend in housing contracts, Kwon assessed that softened regulations on the rental housing market “paved the way” for more private businesses to join the market.
Announce by the Ministry of Land, Infrastructure and Transport in August, eased regulations came as smaller private firms mainly operated rental properties while larger enterprises showed little interest due to tight rules.
These rules included a ban on rent from increasing at a faster pace than inflation rate and a 5 percent cap on rent hikes.
The ministry offered a wide range of benefits for those who rent more than 100 homes in a single residential complex for 20 years or longer.
A shopper holds a lunch box, which is popular among single-person households, at a convenience store in Seoul, Feb. 1. Newsis
Against this backdrop, Morgan Stanley, a U.S.-headquartered investment bank, expanded to the rental housing market in partnership with SK D&D, a real estate developer affiliated with Korea’s No. 2 conglomerate SK Group.
On Nov. 18, the Morgan Stanley-SK D&D duo announced an investment deal on a 195-room office building in Seoul, with a plan to convert the building to cope with up-to-date residential trends.
Morgan Stanley also acquired a one-room rental housing complex in Seoul that started hosting tenants in November.
The units come fully furnished with furniture and appliances, and the building offers amenities such as a fitness center and a resident relaxation area, which are rare in typical one-room rentals.
Another U.S.-headquartered investment company, Kolberg Kravis Roberts (KKR) set up a joint venture with Hong Kong-based-Weave Living to invest in rental housing in Korea. .
KKR acquired The State Sunyu Hotel in Seoul, too, with a goal of reopening it as a luxury residence in December.
Additionally, KKR purchased a 98-room office building in Seoul.
ICG, a U.K.-headquartered asset management firm, raised 300 billion won ($213.82 million) in a fund with Seoul-based real estate developer Homes Company.
The two partners have been carrying out projects in multiple areas in Seoul and Gyeonggi Province, with the goal of remodeling office buildings into rental housing.
ICG plans to open an office in Seoul within this year, to speed up its Korea investment.
Kim Dong-young, chairman of the Global Real Estate Association of Seoul, deemed that the housing market for single-person families will grow in the middle of changing demographic trends.
Citing Statistics Korea, Kim referred to single-person households reaching 7.83 million nationwide as of 2023.
The number accounted for 35.5 percent of all households last year, up from 15.5 percent in 2020.
The 7.83 million was also twice the size of households with four or more people, which has been a traditional form of family for decades.
And 45.1 percent of single-person families live on monthly rent this year, an 8.9 percentage point increase from 2022, according to a housing market report recently published by KB Financial Group.
In the meantime, market observers recommended offering tailored services for a range of single-person households based on their income, age, gender and other factors.
“For instance, not all individuals who live alone are wealthy enough to afford to live in luxurious residential buildings,” Kim said.
He referred to a report from KB Financial Group’s think tank, which showed that 54.8 percent of 2,000 single-person households surveyed took on an extra job due to insufficient income and other reasons.
A separate finding from the Bank of Korea showed single-person households have been cutting spending, due mainly to high housing expenses and a tough job market situation.
Their average consumption propensity had fallen by 5.8 percent from 2019 to 2023, the sharpest decline among all households nationwide.
In 2023, some 70 percent of single-person households earned less than 30 million won a year, compared with the average annual income of 30.95 million for all households.