Korean property transaction volumes soar 52% to US$3.4b in Q1

This represents 29% of the total transaction amount in 2020.

Korea's economic growth rate in 2020 fell to -1%. In the domestic economy, the recovery of private consumption is expected to be delayed, but the recovery in exports and investment is continuing and the employment situation is expected to improve from the second half. The Bank of Korea forecasts economic growth for 2021 and 2022 of 3.0% and 2.5%, respectively. 

Savills reports that the total transaction volume for Q1/2021 came in at KRW3.9 trillion (US$3.4b), up about 52% from Q1/2020, about 29% of the total transaction amount last year. The number of transactions fell, but the volume of transactions increased due to the closure of a few large deals such as SK Seorin-dong Building, Pine Avenue B and Twin Tree Tower. Most of the major transactions were concentrated in the CBD, and transactions were made at high prices on the back of abundant liquidity and a steady rise in real estate prices since last year. 

Here’s more from Savills:

In CBD, SK Group purchased the SK Seorin-dong Building for KRW1,003 billion (KRW39.6 million/pyeong) from Hana Alternative AMC. The transaction was ranked third largest in Seoul office sales after IFC (KRW1.85 trillion) and Centropolis (KRW1.12 trillion). SK Group sold the building to Bank of America in 2005. After selling the building to Bank of America in 2005, SK Group has been occupying the building through a sale-and- leaseback agreement and using it as a headquarters for 20 years. SK Group is reportedly planning to establish their own REIT based on this asset and operate the building in the future. 

Samsung SRA AMC acquired Pine Avenue B for KRW620 billion (KRW31.9 million/pyeong) from Koramco AMC. Despite its high vacancy rate due to the relocation of major tenants, its location and accessibility to the subway led many asset management companies to participate in the bidding and the transaction was closed at KRW30.0 million/pyeong. 

In GBD, a large game company, Smilegate purchased Donggung Richwell Tower for KRW200 billion (KRW36.4 million/ pyeong) from Dong-gung Construction. As a new building located in Teheran-ro and given the recent rise in real estate prices in Gangnam, the deal was closed above Hyundai Marine Gangnam Tower (KRW34 million/pyeong), which recorded the highest unit price in 2020. 

The prime office cap. rate for Q1/2021, assuming face rents, is estimated at low-4%, compared to early-mid-3% on an effective rent basis. The average five-year treasury yield rose 10 bps from the previous quarter to 1.4%, with the prime office spread based on effective rents at around 200 bps.