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South Korea Real Estate Report Q4 2011
Business Monitor International, Oct 2011, Pages: 60
BMI is forecasting real GDP growth in South Korea at 4% for 2011, below the government’s target of 5%. However, the risks are now rising in relation to projections for South Korea’s economic growth due to lowering expectations for global growth. The debt issues in Europe may well cause a double dip recession in Europe and the US and this is added to the risk of a hard landing in China. South Korea is an export dependant economy whose local industries are also facing tougher competition.
The Bank of Korea has raised the key rate by a total of 75 basis points in 2011 to 3.25%, in an effort to curb inflation. The country’s industrial output registered its weakest growth in ten months in July 2011, coming in at 3.8% y-o-y from a revised 6.5% in June. The weaker showing was attributable to construction projects showing a 13.2% y-o-y contraction. South Korean construction companies are facing increasing liquidity shortages and several businesses have been forced into seeking court protection. Consequently, banks are losing confidence in construction firms' repayment ability and they appear to be tightening standards for construction-related lending. This could potentially trigger a vicious cycle that exacerbates the construction sector's financial troubles and acts as a drag on building investment. This scenario would likely have some negative impact on property prices, particularly if there is any distressed selling.
At present the commercial real estate sector is performing well, assisted by an upward swing in overall leasing demand. According to BMI's latest interviews with in-country sources, the outlook is for rental growth across all three major commercial centres in 2012, with an expected 1-4% increase across the centres. This is despite abundant new space in 2012 in Seoul, including Mirae Asset Tower and Signature Towers, two twin 17-story office buildings featuring 100,000sq m (1,076,000sq ft) of new space.
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