 Pushed forwards by its powerful mega-conglomerates, South Korea has ridden the World Cup wave – but now concerns are growing for its residential market. MARK FAITHFULL reports
Alot has happened in South Korea since the World Cup hit town in 2002. When the Koreans co-hosted the globe’s biggest sporting event with Japan, the home team’s high-energy performances improbably brought it to the semi-finals before Germany spiked the dream. Yet five years on, Midori Matsuoka, Sydney-based regional director of international research for ACNielsen, asserts that far from enjoying a fleeting moment in the limelight, South Korea has felt a long-lasting impact from the World Cup. “Big corporations such as Samsung were able to build far higher credibility, not just overseas but even in their own country,” she says. “Korean products were once perceived as lower in quality, but that brand perception really changed after the World Cup.” Indeed, South Korea’s economy is propelled by a “big five” that have their hands in everything from automobile manufacture to mobile phone technology, air conditioning plant to supermarket chains. That strength in retail has been all too evident for some: late last year the world’s biggest retailer, Wal-Mart, exited South Korea after selling up to local competitors. Samsung (which maintains the football link through its sponsorship of English Premiership champions Chelsea), Daewoo, Hyundai, LG and SK have been at the heart of Korea’s progression, which has fuelled a strong domestic property market and international investment. Nowhere is this more evident than in the capital Seoul, where a Richard Rogers Partnership-designed mixed-use development for Skylan Properties Korea broke ground last year. The €1.3bn shopping-hotel-office complex on Yeouido Island will be completed in 2010 and will become the first facility in the city offering a place to work, shop and play. Named Parc 1, its two 270 m glass towers will be Seoul’s tallest and will include a six-storey glass central structure with retail space for over 400 shops and two hotels. “Parc 1 will be world-class in all respects – architecture, environment, management and financial structure,” says Peter Walichnowski, CEO of Skylan Properties and the former CEO of Dubai-based Majid Al Futtaim, the company behind the Mall of the Emirates. “It will be a fitting symbol for Korea’s aspirations, and up to 5,000 jobs will be created in the shops, hotels and tower management,” he stresses. Previously, the local focus has been on residential property. Frenzied investment saw residential property prices jump over 20% last year in the seven so-called “bubble zones” in and around Seoul, and has created fears that the country – and Seoul in particular – could be heading for a spectacular price crash if the current bubble pops. Those steeply rising prices have hurt President Roh Moo-hyun of South Korea and his government, which is actively seeking international investors this year. But although the government has pledged to build more new housing and is stemming demand by tightening personal loan requirements for mortgages, state-run development companies like the Korea Land Corporation and Korea National Housing Corporation paid about €8.9bn between December 2006 and March this year alone for land.  Analysts predict that a large portion of this land acquisition money will flow into the real estate market, particularly in Seoul and adjacent areas, reigniting a property market cooled after the government announced anti-speculation measures in November. “Most people who receive the compensation money for their land from the government usually purchase land near where they live and then spend the remaining amount to buy apartments in the affluent Kangnam and Pundang districts and nearby satellite cities. About 60% of the land acquisition money is flowing into the property market,’’ says Kim Kyu-jung, a market analyst at real estate information provider Real Estate 114.
The government has paid out about €30.5bn over the past three years on development projects including the construction of an administrative capital in South Chungchong Province and company towns across the country. It is expected to pay a further €24.8bn over the next three years. Against this backdrop, the government plans to require state-run developers to compensate landowners with alternative land or other goods, rather than cash. It expects strong opposition from landowners, however; Deputy Minister of Finance and Economy Lim Young-rok has admitted of the strategy: “The government has mobilised a range of policy tools to encourage companies and individuals to refrain from investing in the property market, but it has been difficult.” Investment specialist Korea Investment & Securities has warned that the property bubble could burst. “Downward pressure is building on the real estate market as property prices have risen at an explosive pace over the past few years,” the brokerage firm says. “We cannot rule out the possibility of the collapse of the real estate market.’’ Prince Cruz, a senior economist at the Global Property Guide, goes further; he claims that, far from booming, Asia’s residential markets – including South Korea – have performed poorly once headline price rise figures are adjusted for inflation. “A combination of inflation, widespread subsidies of housing markets, political troubles and overbuilding have made the outcome in Asia quite different from other boom markets,” says Cruz. “Asia’s property boom is a construction boom rather than a property boom, and the modest apparent price rises that we have seen in South Korea, Singapore and the Philippines actually become price falls, or are greatly moderated, once inflation is factored in,” he claims.  Away from residential pressures, Seoul is pressing ahead with new initiatives, the highest-profile of which is Digital Media City (DMC). Adjacent to Seoul World Cup Stadium, in World Cup Park (a park as large as New York’s Central Park), and next to an environmentally friendly residential complex of 7,000 apartments, DMC is a 30-minute drive from Incheon International Airport. DMC will specialise in the media and entertainment industry, IT services and software related to building services, and will serve as an outpost supplying cultural products and services led by cutting-edge technological innovation.
An international railway, currently under construction, will pass through the DMC area before stretching out to North Korea, Manchuria and Siberia. Linking DMC are five expressways and a subway line connecting to downtown Seoul in 15 minutes. Like the rest of Seoul, the project is on a property fast lane – but where the market’s current path is leading it is another matter. |