Last updated July 8th, 2023.
Asian property markets are excellent places to seek value and long-term capital appreciation. Yet certain parts of the region are ill-suited to foreign real estate investors who wish to diversify their portfolio. Seoul, South Korea is among these cities which are best avoided.
The facts about Korea’s investment potential are attractive on paper. Multinational firms such as Samsung, LG, and Hyundai have grown enormously successful in a short amount of time, transforming from unknown brands in the early-2000s into global powerhouses today.
Similarly, a robust Korean economy helped it join the ranks of Asia’s most-developed nations. The country’s GDP per capita is expected to surpass Japan’s by the year 2030 in a clear sign of South Korea’s newfound wealth.
Real estate prices in Seoul, and across South Korea in general, have become extraordinarily high when compared to other cities in Asia though. That’s the first major problem
Korea’s declining population, slowing economy, and “geopolitical issues” (to put the situation with its northern neighbor lightly) will additionally pose immense business challenges going forward.
Below, we’ll describe in detail a few reasons why you might consider holding off on a property purchase in Seoul, South Korea right now.
Asia’s Most Expensive Real Estate Market?
A main factor worth noting is that South Korea’s cost of land and housing rose drastically over the past several years, doubling in many parts of the nation.
Currently, real estate values here are exorbitant by both global and regional standards. The cost per square meter in central Seoul is now approximately US$20,000 – way beyond prices seen in Asia’s comparable developed cities.
Seoul is now the world’s third most expensive property market, ranking after Monaco and Hong Kong. This is even above wealthier countries including Japan, where prices are around US$16,000 per square meter, and Singapore, with an average closer to US$14,000 per sqm.
Purchasing a house or apartment unit in Seoul will cost you roughly double the equivalent space compared to place like Tokyo.
Now, that doesn’t necessarily mean that Seoul’s real estate values won’t keep rising in the future. Many analysts been calling prices in Hong Kong and Singapore “too expensive” for the past decade – they were obviously wrong as prices in those cities nearly tripled since then.
Korea certainly isn’t Singapore or Hong Kong though, nor does Seoul serve the same purpose as either of those two cities.
Seoul simply doesn’t act as a global financial hub to the same extent that Singapore or Hong Kong do. Meanwhile, South Korea’s demographic and geopolitical risks also aren’t a big issue in these cities.
You should therefore keep in mind that purchasing real estate in Seoul is, at least by some metrics, riskier compared to other developed cities in Asia.
That’s especially true considering a lack of foreign housing demand in South Korea. Wealthy global citizens normally look elsewhere in the region.
Korea’s Rapid Demographic Decline
Korea saw its GDP growth rate exceed 4% on average over the past decade – an impressive pace considering it’s a developed economy.
However, what definitely won’t grow in the future is Korea’s population size. The country’s dire demographic situation is quickly getting worse.
Like China and Japan, South Korea will see its population continuously fall in the future. This downward trajectory finally began in 2021, which was the first year in modern history that saw Korea’s population decline.
With 51 million people living in South Korea currently, the country’s population is expected to fall below 40 million by 2060. Demographic decline usually takes years to play out, but it ultimately doesn’t bode well for the nation’s economic future at all.
Less real estate demand will almost surely put downward pressure on Seoul’s housing market over the next several decades. At the same time, the median age in South Korea is already at an already high 43.7 years old.
Of course, this number will increase alongside the country’s aging population, putting further stress on labor productivity and social services – both main factors which have contributed to Korea’s economic success thus far.
Seoul is only about 200km away from the North Korean border. Naturally, the city’s metro area would be the first target in any conflict.
Will Korea’s “Crazy Neighbor” Affect Property Values?
Perhaps the most obvious reason to not invest in Seoul property, at least looking at its real estate market from a foreign buyer’s perspective, is the geopolitical risk that comes along with neighboring North Korea.
We aren’t about doom and gloom here at InvestAsian. Indeed, it’s entirely possible that cooler heads will prevail and there won’t be another Korean War anytime this century. Or the next.
Regardless, the possibly of war on the Korean peninsula certainly has a historical precedent. It’s happened before, and Korea’s risk is worth noting in the same way we’d be amiss to not mention Tokyo’s location on a major fault line, or Taiwan’s similar geopolitical problems.
If a second Korean war does break out, real estate prices would steeply decline. There wouldn’t be any guarantee that anyone’s home or apartment building would remain structurally intact, let alone ever return to its previous value.
Future war prospects aren’t necessarily something to necessarily bet on or price into an asset. Nonetheless, North Korea is a wildcard, and over the long-term, the chances of conflict affecting real estate investors aren’t exactly negligible.
Don’t Buy Property in Seoul: You Have Better Options
Housing markets don’t exist in a bubble. As a global investor, you enjoy a greater variety of options. You aren’t forced to choose between locations within a single city, country, or even continent.
Sure, there are some positive aspects to purchasing real estate in Seoul. The Korean Won ranks among the world’s most stable currencies, and foreign land ownership is allowed on a freehold basis as well.
But nearby places in Asia also benefit from these same factors. Singapore and Taiwan, just to offer two examples, are also developed international tech hubs with stable currencies. Like Korea, they also both allow foreign homeownership.
With all other factors being equal, why pick the property market with looming demographic decline and a less-than-remote chance of a major war happening within your lifetime?
We believe there are plentiful investment opportunities across Asia’s real estate markets. But Seoul’s unfortunately isn’t one of them.
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