Korean Job Discussion Forums

[sleep furious idea]

Folks,

I am planning to buy an apartment this year or early next year. I came across this site and it looks fairly helpful and informative:

http://www.globalpropertyguide.com/Asia/South-Korea/Buying-Guide

However, I would like to hear about peoples personal experiences purchasing property in Korea.

Have any foreigners on Dave's purchased a home in Korea or know someone who has?

I am interested in how long the process usually takes once a place is bid on, if having someone fluent in Korean is necessary through the whole process, and, any other pertinent information anyone cares to share.

Down the road I would also like to rent out the place when I am not in Korea. I know that remitting money abroad from rental income requires either a stock company 주식회사 or a limited liability company 유한회사 to be set up. Does anyone know anyone who has done such a thing?

Cheers everyone,

Sleep

[GwangjuParents]

We bought outright.

Only advice:

1. Throw all your pre-conceptions about real-estate and how the system generally works out the window. They do things differently here.

2. Unless you speak totally fluent Korean, good luck with the process.

[madoka]

I bought a small apartment as a vacation house for when I'm in Korea. It is actually a hotel that sold some of their rooms. I was given the option of allowing my apartment to be rented out when I am not there. I did not want this, as I wanted to furnish it with my stuff, but it sounds like an arrangement that you might be interested in.

The best unspoken advantage of my place is that there is a 24 hour, English-speaking front desk to take care of any issues. Plus, the hotel services largely a business or foreign clientele, so it's relatively quiet. The disadvantage is that there is a larger than normal monthly maintainance fee.

BTW, I used Koreans I trusted to handle everything for me. Don't think I could have done it on my own.

[PRagic]

Buying WOULD HAVE BEEN a great option 10-15 years ago. We bought some land during the 'IMF' over 10 years ago, and that has panned out quite well. I wouldn't touch most properties in Seoul now with a ten-foot pole. Just go chunsae and do your due diligence on any property leans before you fork over the coin.

There are a lot of properties up for sale now. The market is getting ready to spook. For the first time, I've even hear real estate people confirming what academia has been saying about the Korean market for a few years now: It's bubble pop time.

Had we purchased the apartment we're in now only two years ago, we would have lost over 100 million. It was overpriced then, and in my opinion it's still over priced. We're moving to a cheaper chunsae near by as we both hate apartments anyway. On the other hand, I have a friend who bought a cheaper apartment (more than 50% cheaper) 3 years ago in a less developed part of Seoul, and he made (after deducting taxes and lost interest) around 60 million won. Remember that that was CHEAP back when he bought it, and not the most desirable location in the world. He got lucky.

Most neighborhoods most people want to live are already priced out. Even small, 30 pyung single floor homes or old, smaller 2-stories (where at least you'd get the land) are running for 700 - 1 million+.

We've looked into it, and my wife has friends who are uber active in the local market. These women live for this stuff, and they are staying away now.

Just my 2 cents. Do what you will and let us know how things go.

[blue.sky]

Just my experience, not sure if its useful for your situation.

We have a small one room apartment in Busan which we bought for 30 or 35million (can't quite remember now) and we rent it out for 10 million + 350k/month.

We live in Seoul and I never understand the key money system. We could have bought our loft apartment for 110-120 million or rent it with 80 million key money. Seems like a no brainer to me (unless we lose our key money ). This suggests to me that house prices in Seoul are driven more by speculation than rational valuations and I can see a big correction coming

Also, since the Busan pad is in my wife's name, our home would have to be in mine unless we want to stump up some heavy taxes on a 2nd home. We looked into registering it under my name but it seemed a pretty cumbersome procedure, and I refused to commit a pile of cash to something I couldn't fathom. An alternative is to buy an Officetel and register it as an office rather than a residence. You can then rent it out to someone through a 부동산 as if it were a residence. It's a tax dodge, but very common in Korea.

The housing market in Seoul seems to be primarily driven by locality to education, so if you don't have kids then you can find a reasonably-priced property whose price hasn't been bid-up by desperate, crazy parents.

The purchase of our flat was straight forward and we only spent 1 day looking. Unless you have a reliable and trustworthy Korean to help you, then I'd say forget it. Also, the 부동산 finds tenants, but many are pretty crooked and will always convince you that they can't find a tenant unless you drop your rent - and then take a cash payment from the tenant for the reduced rent. Word of mouth is a good way in Korea for finding reputable estate agents - again a difficult method for foreigners to use.

[jizza]

Can someone explain the purpose of key money? And how that replaces having to actually pay rent?

[meangradin]

[PRagic]

Blue.sky: Is your 'loft apartment' an officitel? If so, the key money received vis-a-vis the buy price is just a bit higher than the 60% usually expected. The reason many don't buy officitels is that they can actually go down in price as they age, whereas individual standing houses, apartments and buildings have tended to increase in price. Even if officitels do increase in price, the ratio is generally nowhere near the price increases on other properties. These were usually purchased to provide rental income under the tax radar. The government, however, has cranked up its tax collecting scheme, so now officitel owners have to declare their income from rentals. The 'tax dodge' that you mention has become increasingly risky as the government actually sends people around to check now, and building managers are insisting that 'occupants' sign off on residence and usage of the officitel space.

In general, the key money system helped to bolster the local real estate market. Banks traditionally didn't make individual property loans, and even if they did, the interest rates were high. By receiving key money in a high interest rate environment, owners could pay off outstanding loans on property or, if they owned the property outright, collect interest income comparable to potential monthly rental incomes. Key money is going the way of the dodo because interest rates are at historic local lows and more and more 'owners' are overextended; if the owner has leins on a property or the property has only a small portion payed off, then your key money is correspondingly at risk.

And I agree on the 'bubble' perspective. Some studies have shown that Seoul has hugely disproportunate housing prices, concluding that apartment prices, for example, should be about the level of current key money rents. This suggests a possible 40-50% downward correction in the local market. In Japan, properties, even luxury properties, have been discounted up to 90% and they still can't find buyers. The difference is that Korean owners haven't been burned in large numbers....yet, so they're still not skiddish.

Buy at your own risk here. If valuations continue to ignore global standards and trends in favour of local expectations, then who knows? I just wouldn't be want to be the one who bought in at the top of the pricing game! In economics, there is a theory for market contagion based on a mass belief that there will always be 'one more idiot' who will pay more than 'I' did.

[bassexpander]

Officetell utilities are higher, too. Part of it was location, but I was paying more in utilities on my 12 pyung officetell than I was on our current 33+ pyung apartment.

PR, about this bubble.... I thought that everyone is buying suddenly (after a lull), and so much so that the gov't is starting to squelch lending again?

I don't disagree with what you say, but what are the realtors telling you for timeframe ... anyone have a guess as to when the burst might happen?

We're paying 900,000 a month on our place (a bargain) plus deposit, and expect it to go up after another 1 1/2 years when we have to remake a contract. Sure would be nice if the bubble burst before then and we didn't have to increase our rent payment a lot (or at all). All I'm hearing about is how rental prices are going through the roof right now.

[PRagic]

There's the problem. The news has been reporting that key money is going up, so people are buying as they think that they're going to be able to pay off any short term debt faster.

Like I said, many apartments have gone down in value, it's just that they don't report that in the news. I wouldn't say prices are going throught the roof, but some people who bought a few years ago in popular areas (remember the 3-year lock in for tax purposes) can now dump and run and make a decent profit.

The news has, however, reported on the slow consumption of new town apartments. Songdo, for example, has a ton of new apartments where the key money is low compared to asking prices, and there are a load of empty units.

The realtors we've talked to put the pop and run scenerio (quietly) in the 2-3 year ballpark. We were shown some new units that would blow your mind; modern, design winning townhouse-type places, but the bulk of them weren't being bought, and the owners who did buy and are now looking to key money them are SOL; nobody wants to take on the risk as these people are up to their *beep* in debt. These international award winning places are empty. Asking price is over 1 million US. Go figure.

Then there is the extended future scenario. What the heck are you going to do with a million 19-25 story apartment buildings down the line? Nobody owns any of the land (theoretically, I guess you'd own enough land to place a strategic dump in).

And, yes, I do agree that officitel management fees are loopy. Even apartments attached to officitels are a rip off. We looked at the Empire River at HapJeong Station right on the Han River. Fantastic looking units, but not cheap. Still, we almost forked it over until my wife found out that the managment fees and utilities would have run us at least 500-600 a month on a 55-60 pyung place. Funny stuff. And, yup, go figure...the bulk of those apartment units are still empty!

The way I look at it, it's a house of cards. A lot of the expensive KangNam apartment owners have speculated the hell out of KangNam, and are now speculating north of the river. But prices are way out of realistic whack compared to GDP/cap and prices in other developed markets. When apartment prices fall in KangNam, they'll be dumping property all over the place to try and stave profit loss. Supply and demand. Prices will have to fall, and once they start, people will put off buying in anticipation of further decreases. BaBOOM. Unlike Hong Kong, NY, Shanghi, and LA, there isn't a lot of international competition for real estate here to bolster price horizons.

But, hey, maybe I'm wrong. Wish some of the analysts on the Street would end their articles like that!

[Unposter]

I heard that one of the reasons prices have increased in high demand areas such as Gangnam is that Gyopos have entered the market in droves. As the Korean won weakened, apartment prices looked good for ethnic Koreans of other nationalities. The Japanese, too, have also been on a limited, strategic basis have bought up properties throughout Seoul.

All these "added" buyers have kept the housing market afloat.

I believe that rising housing prices were fueled in part by the high savings rate in Korea. Because of the large savings that many Korean families had they had money to buy and or invest in housing. Now, that savings rates have dropped and in many cases disapeared, it will be interesting to see if people will have the money to pay for housing in Seoul. They may not.

But, that does not necessarily mean that housing prices will decrease dramatically. It just means fewer people will be home owners. It will probably hasten the demise of the cheonsae or key money for housing and you will see more weolsay or monthly rents as more property investors and real estate companies will try to profit from rent rather than increasing home values.

The Korean population has actually sustained itself but with its current birthrates in the next 10 to 20 years, there will be a decrease in population. This may lead to an increase in imported labor - we will see. The population decline is going to hit rural areas hard. Smaller cities will also take a big hit. It may even impact Busan.

But, Seoul is a completely different matter. It is still the place to be in Korea and will probably be for the foreseeable future. It is where the good jobs are. And, even as the population lessens, there will still be an army of people waiting to move to Seoul, especially the southern part.

Housing prices outside of Seoul are much less now and I suspect will continue to decline. I would not touch buying property outside of Seoul unless it is majorily discounted, but property in Seoul, I suspect, will continue to maintain its value or actually gain in value.

Take a look at the Korean economy. It is surprisingly strong. Yes, people at the bottom are hurting; they are everywhere. But the Korean rich are still getting richer. And, they are going to live in Seoul when they are in Korea. (Many wealthy Koreans have overseas residences and I suspect more upper middle class Koreans wil in the future.) They will have plenty of money to keep Seoul prices afloat and may even see price increases as their wealth increases.

Bottom line, and you can take it for whatever it is worth, I would not expect a big correction in Seoul. Outside of Seoul, definitely. Inside of Seoul, we will see.

[meangradin]

The thing that I don't understand is why they keep building, yet there seems to be no market for these new apartments. In Ulsan, there is a very noticable increase in the number of higher end apartments, but they are for the most part empty, yet they keep breaking ground on new buildings. IMO, supply is clearly much greater than demand, yet prices are going up! Go figure.

[PRagic]

Prices are going up only in some areas in some cities.

There has indeed been some increase in investment from outside of Korea. This is speculatory, not long term, so it only increases the chances of a bubble pop. The dollar got slammed a couple of days ago, and many see it sliding even more against major currencies.

The savings rate in Korea was high, yes, but over the years it has declined, you're right. And there has been over-speculation in the apartment market. Now Korea has its highest levels of household debt ever. People are leveraged already. Wait until they (as tradition dictates) have to find money to pay for their son's house or, if they have a daughter, all the stuff in the house (plus other 'keys' should they marry money) when the kids get married.

Comparatively, the Korean economy is not in a horrible position, no. However, if you look at what China is doing, Korea's relative position may weaken. China, much as global regulatory and financial organizations have suggested, is A) investing heavily in green energy technology and B) in manufacturing to bolster domestic demand. That is key. Korea is doing A, but not much for B. It's no secret that if the domestic real estate market pops, the economy here will experience a mini-subprime fiasco. It won't have global or even regional repercussions, but it will slam Korea hard; too many big loans to people who should not have been receiving big loans, and bloated property prices. Sound familiar? Should by now.

Seoul is a different animal, yes, but nearly 40% of the population is in or around Seoul and the capital area. A new office of regional development was recently created, and Korea is seriously looking at its uneven development problem, but, as another poster mentioned, the long and short of it is that people go where the jobs are.

Chunsae will decline because interest rates have dropped. Also, an aging population of speculators and investors will want to generate income from their properties. This was the case long ago, too, but the local economy and wage levels wouldn't support rent prices and interest rates were high enough to generate income. That has changed.

There are going to be huge differences througout Seoul. Some apartments in KangNam have increased their key money by over 100 million won, while in other areas outside of these idiot zones, apartment prices and associated key money requirements have dropped. And remember, this is primarily for apartments. I looked at some units in KangNam just a week or so ago (NOT apartments), and the prices were pretty similar to where we live now (NOT in KangNam). Apartment prices are speculative, and that puts them atop a house of cards. These owners own other properties as well. These are the people under closer and closer tax scrutiny.

Always fun to get a differing opinion. I'll stick with my bubble-pop scenerio, even though the Korean government is trying to do everything it can to prevent it in the face of a world where prices have dropped almost universally. Even Hong Kong and Shanghi are only now just starting to recover. Tokyo and Osaka are still in the dolldrums. Eh, we'll just have to wait and see.

[blackjack]

What effect is population decline going to have? Korea has one of the lowest birthrates in the world and in 20 years time going to see a rapidly declining population. with a declining population and massive construction isn't there going to be a large number of apartments sitting empty?

[blue.sky]