Real estate: Busan more promising than Seoul

Expats attracted to ocean view of southern port city

By David Choi

Busan is changing. Given that the Korean real estate market is typically led by Seoul and its metropolitan area, it seems very special that the changes in Busan, South Korea’s second largest city, are becoming a ‘real’ real estate issue around the nation.

First of all, there has been a remarkable quantitative change. The construction sector stopped supplying new properties because of hugely unfavorable conditions such as the financial crisis, and that contributed to an imbalance in supply and demand.

The supply of new apartments in Busan was only 22,688 from 2009 to 2010, which amounts only to 60 percent of the volume commonly required for one year.

The quantitative change has also created a qualitative synergy effect.

The price of apartments in Busan has jumped 16 percent in only two years. Considering that the average rate of increase nationwide was 3.4 percent during the same period, this is an exceptional phenomenon. The trend is sufficiently large to be considered remarkable.

There are signs in the market indicating that this trend will last for a while. Many real estate investors, expecting future price increases, are buying additional apartments.

The engines of this change in Busan’s real estate market, particularly in the housing area, can be summarized into three major points.

First, Busan is practically expanding. Busan was one of the Korean cities that had seen a decrease in population. The city experienced a decrease in population over the past 16 years, since hitting a peak of 4 million in 1995 (3.65 million as of the end of 2010).

Traditional industries such as lumber, shoemaking, and steel, have been declining in Busan, and with regard to the economy, Busan is no longer one of the key industrial areas.

But many unusual symptoms began to appear in this trend during the last two to three years, which seemed likely to become permanent.

The expansion of large traffic infrastructures, including the opening of the Busan-Ulsan highway and Geoga Bridge (Busan to Geoje island), offered a powerful engine of change.

This change is encouraged by the prediction that ‘Ulsan-Yangsan-eastern Busan’ and ‘western Busan-Kimhae-Changwon’ will become megalopolises.

Commuting between Busan and production-intensive cities in the outer Busan region by using well-equipped transportation networks, while living in South Korea’s second-largest metropolis with convenient infrastructures such as shopping malls, schools and hospitals, is becoming a new lifestyle pattern.

This change has not only revitalized Busan’s economy, but also encouraged Busan to play a central role and function as a core city of the southeast region. This became the basis of the recent trend of population growth.

Second, there are a great number of consumers who are looking to check whether it is safe or sound to invest.

Investors in Busan, who were known to be highly risk-averse, now have a desire to tap new opportunities. They are beginning to ask which investments are worthwhile and where they should be made, worrying that “others are managing their wealth in ways that I am not aware of.” Experiences like collecting information in newspapers and the Internet, sharing opinions with acquaintances in similar circumstances, and making a profit amounting to about half their annual salary through pre-sale contracts made in consultation with real estate brokers have resulted in a great learning effect.

This change of the mindset among investors is one of major factors changing the Busan real estate market.

Third, new products are emerging.

Construction companies are rushing to launch new products, while the press is heralding Busan as the most attractive investment destination, surpassing the metropolitan area of the capital area. In the past many investors used to invest in projects in Seoul and nearby satellite cities, but nowadays they are targeting the Busan market. New projects in Busan include residential buildings with 100 floors and more.

Construction companies promote these projects nationwide, as they know Busan’s ocean view has a universal appeal.

Busan is expected to create a new standard because there will be a lot of luxurious products in terms of interior design in Busan.

Recently, a growing number of foreign investors have been buying luxurious residential buildings in the Haeundae district, including Centum City and Marine City. The awareness that a luxurious residential building with an excellent view and attractive interior design is available at less than the half price of those in Seoul and the metropolitan area is widely being perpetuated.

While these foreign investors mainly include people we would be considered half-foreigners, like successful Korean-Japanese businessmen with connections in Busan, there are a growing number of cases in which foreign-affiliated companies, which have entered Busan industries such as the shipping sector, are buying luxurious properties to house company executives. This trend is becoming another factor stimulating the creation of brand-new high quality products.

In particular, the Haeundae district is emerging as an attractive residential area for foreigners because it is well-equipped with convenience facilities such as top-notch medical institutions where there are no language barriers, international schools, and the world’s largest department store (Shinsegae Centum City, according to the Guinness Book of World Records), as well as an excellent natural environment thanks to the warm oceanic climate and fresh air.

A growing number of people are making money through their first investment, and Korea’s best products that are also preferred by foreigners popping up in Busan.

It is expected that the time will come soon that Korea’s finest residential buildings preferred by foreigners are found not in Seoul, but in the resort-like Busan.

Busan is changing, and it is time to find a pearl in the Transportation between adjacent cities are being sufficiently improved and observers are becoming aware of the trend.

David Choi is the general manager of Cushman & Wakefield in Busan.