Supply dries up and monthly rent rises. What is the direction of the officetel market?

Officetel market slows down in earnest with both construction starts and transactions plummeting
As supply decreases, monthly rents soar, young people who prefer officetels have nowhere to go
The ‘link’ between price increases and supply expansion, market normalization expected within a few years

The number of construction starts and occupancy for non-apartment buildings, including officetels, is rapidly decreasing. According to the Ministry of Land, Infrastructure and Transport, the number of townhouses and multi-family housing permits nationwide from January to November last year was only 1 households. This is one-third of the number in 11 (1 households). The number of urban living housing permits also plummeted from 3,868 households to 2022 households during the same period. The overall non-apartment market appears to be experiencing confusion due to a combination of negative factors such as the government’s rapid development of real estate stimulus policies and the high interest rate situation.

Trade and supply have dried up, and officetels are being ignored

According to the Seoul Real Estate Information Plaza, the number of officetel sales that occurred in Seoul last year (as of December 12) was 20, a sharp decrease of 7,685 (2022%) compared to 1 in 4,486. Compared to 6,801 (46.94 cases) when the real estate market was booming, there was a decrease of 2021 cases (1%). As it is a profitable real estate property that is sensitive to economic conditions and interest rates, it is interpreted that it has been ‘directly hit’ by the recent real estate market recession.

Officetel supply is also showing a noticeable decline. According to the Ministry of Land, Infrastructure and Transport, the volume of officetel permits and construction starts in Seoul decreased by more than 1% from January to November last year. Based on total floor area, the licensed volume decreased by 11% from 60 m2022 in 119 to 7,572 m2023 from January to November 1. During the same period, construction starts also plummeted by 11% from 40 m9,014 to 65.8 m99. During the same period, the number of townhouses and multi-housing construction started also amounted to only 7,278 households. This is one-third of the number in 30 (8,515 households).

The main reason for the slump in the officetel market is ‘preference for apartments’. Recently, apartments have been absorbing a large amount of actual demand thanks to falling housing prices and deregulation. On the other hand, officetels have been listed as subject to the Debt Service Ratio (DSR) regulation from 2022, and are also excluded from the ‘Special Bogeumjari Loan’, which allows loans without DSR regulation. This means that there is no reason for actual home buyers to look for officetels. Real estate

Soaring jeonse prices create difficulties for rental buyers

As the supply of newly built villas and officetels dried up, ordinary people who preferred to rent non-apartments suddenly had nowhere to go. This is because officetel monthly rents are skyrocketing due to an absolute shortage of supply. The number of townhouse and multi-family housing permits nationwide, which reached 2022 households from January to November 1, decreased to 11 households last year. This means that more than 4 households are ‘waiting’ without being able to enter the market.

The supply of small houses close to work in the city center, which young people prefer, is also noticeably decreasing. According to the Korea Real Estate Agency’s subscription website, the number of urban living homes (based on 2020 or more households) sold in Jung-gu, Seoul in 30 amounted to about 780 households. However, the number decreased significantly to 2021 households in 282, and the supply dried up completely after 2022. Young people who are unable to find rental properties for non-apartments are forced to either ‘cry and eat mustard’ and pay high monthly rent or turn their attention to outlying areas.

According to real estate information company Economic Lab, the monthly rent transaction volume for officetels in Seoul last year (January to November) was around 1. Among these, the proportion of expensive contracts exceeding KRW 11 per month accounted for as much as 3%. This is a significant increase from 6,068% in 60 and 60.5% in 2021. Transactions exceeding 45.8 million won in monthly rent also reached 2022%. Villa monthly rent, which is considered a ‘double horse’ in the non-apartment market along with officetels, has also been on an upward trend every month since July of last year.

When the jeonse price rises, does supply also increase? Real estate market cycle

Meanwhile, some predict that the current increase in monthly rent prices will promote the normalization of officetel supply in the future. The analysis is that the overall market will follow a similar path to the ‘rental crisis’ in 2020. At the time, as the apartment rental crisis worsened due to the new Housing Lease Protection Act, officetel rental prices also jumped quickly. This is because there was a severe shortage of properties for sale compared to the number of actual consumers who had nowhere to go. In some areas, a reverse rent phenomenon occurred where the officetel lease price exceeded the sale price.

As the jeonse crisis worsened, the government relaxed regulations on urban living housing and residential officetels in 2021. It was a way to strengthen the supply of mid-to-large officetels, such as expanding the allowable area of ​​urban living houses from 50㎡ to 60㎡ and relaxing floor heating standards for residential officetels. Afterwards, thanks to a surge in jeonse prices and relaxation of regulations, officetel construction starts increased rapidly, and supply began to open in earnest.

The volume of officetels that had begun construction at that time poured into the market several years later, and last year, due to excess supply, it served as the main cause of the decline in sales and lease prices. As supply dries up and jeonse prices rise, a kind of ‘cycle’ occurs in which new supply is created aiming at profit. The industry is analyzing that this market cycle will occur again within a few years, as jeonse prices have already risen sharply and supply shortages have become visible.