Korea a target for foreign players
Singaporeans are not only pouring money into Japanese property, they are fast becoming the largest overseas investors in Korea. Most of the funds come from the Government of Singapore Investment Corporation (GIC) and Temasek Holdings.
Since the Asian financial crisis, Singapore has invested W2trn in seven big properties in Seoul. Prior to the IMF bailout at the time of the Asian crisis, foreigners could not own or invest in Korean commercial real estate. In June 1998, the government abolished these restrictions and foreign investors now own some of the biggest landmark office buildings in southern Seoul's Gangnam area. GIC owns the Star Tower and the Seoul Finance Centre. More recently, Ascendas, a Singaporean investment fund, acquired the Citibank Building in the CBD. Macquarie and Schroder Asian Properties purchased the Daewoo Securities Building from Goldman Sachs and the SKC Building and the Tongyang Securities Building from Lone Star.
The Korea real estate market will undergo a series of fundamental changes in 2005, among which will be the introduction of ‘Entrusted Management Type’ REITs and a revised system of property taxation. The regulations on REITs will be relaxed on April 23, reducing the corporation tax and the initial capital requirements. The new regulations will also introduce a new approval system, to review the credit of the originators and the feasibility of the proposed REIT.
During 2005, asset management companies in Korea are expected to expand the range of direct real estate funds, raising in the region of KW500bn. These funds are expected to grow in popularity because the establishment and initial capital requirements are not as onerous as for REITs. Hyundai Securities launched the first auction fund in January. The 'Hyundai Auction Real Estate Investment Trust 1' raised KW150bn.
South Korea’s wealthy real estate holders will face a much heavier tax burden this year, with the enforcement of the new comprehensive real estate tax system. The revised tax system calls for combining land and property taxes, which have been imposed by local governments, into a housing tax. The comprehensive review of real estate taxation is the result of a series of powerful government measures to stabilise real estate prices and crack down on real estate speculation.