[Edaily Marketin YunJi Kim Reporter] "The number of jeonse (lump-sum deposit) leases is declining, while the number of monthly rent leases is increasing. This shift will provide global institutional investors with an opportunity to enter the Korean rental housing market."

This has been the outlook consistently presented by the U.S.-based asset management firm Nuvin Asset Management since last year. The firm made its first foray into the domestic residential real estate market in the first half of this year by partnering with a domestic residential real estate specialist to acquire a property in Seoul. It plans to develop and operate this asset as a rental housing facility.

Not only large asset management firms but also global pension funds are incorporating South Korean rental housing into their portfolios as a new real estate investment destination. Moving beyond the past practice of purchasing individual assets such as officetels or hotels in Seoul, they have recently expanded their investment scope by establishing joint ventures and dedicated investment vehicles worth hundreds of billions of won to develop and operate multiple rental housing projects. The global trend toward alternative investments in residential facilities is spreading to South Korea as well.

"Cash Flow" Residential Assets: A Target for Global Alternative Investments

According to global real estate services firm JLL on the 10th, investment in the global residential sector exceeded $114 billion (approximately 163 trillion won) in the first half of this year. This represents a 9% increase compared to the same period last year. Investment rose across all major regions, including the Americas, Europe, the Middle East, and Africa, as well as Asia-Pacific.

The growth trend in the Asia-Pacific market is even steeper. Last year, residential investment in the Asia-Pacific region reached $12.6 billion, a 77% increase from the previous year. The share of residential real estate in total commercial real estate investment also reached a record high of 9%. In the first quarter of this year, cross-border investment in commercial real estate in the Asia-Pacific region totaled $16.3 billion, an 87% increase from the same period last year, setting a new all-time quarterly record.

The reason for the growing global interest in residential assets is simple: while vacancy rates and rents for offices and commercial facilities can fluctuate significantly depending on economic conditions and corporate tenant demand, residential properties maintain a certain level of demand regardless of the economic cycle. Furthermore, as housing shortages and rising rents persist in major cities, residential assets are becoming increasingly attractive to long-term investors.

Long-term investors, such as pension funds, are expanding their scope beyond simply purchasing completed properties to platform investments, in which they partner with local operators to develop and manage multiple rental housing projects.

Successive Entries into the Korean Rental Housing Market

Global investors’ approach to the Korean market also follows a similar trend. Having moved beyond the initial stage of purchasing individual assets—such as officetels and hotels in Seoul—to assess the profitability and operational viability of the domestic rental housing market, they are now showing a tendency to establish dedicated investment vehicles to develop and operate multiple residential properties using pension fund capital.

TPG Asia Real Estate has partnered with WeeLiving to develop a 550-unit rental residential complex in Jongno-gu, Seoul, targeting an opening in 2030. The project is planned as a “hybrid living” concept designed to cater to both long-term residents and short-term guests.

In June, Tishman Speyer completed the first closing of Korea Living Venture (KLV) by securing Dutch pension fund manager APG and real estate investment manager BauInvest as cornerstone investors. The fund size is $300 million. KLV plans to invest in acquiring existing residential assets or developing new rental housing, primarily in Seoul and the greater Seoul area.

Last October, the Government of Singapore Investment Corporation (GIC), in partnership with WeLive, resumed investment in the domestic rental housing market for the first time in about seven years, establishing a 635 billion won investment program and acquiring a 143-unit officetel in Jeonnong-dong, Seoul.

Through the investment platform established with WeLive, KKR acquired its third asset—a 121-unit property near Gangnam Station—for approximately 44 billion won in August of last year, while Morgan Stanley, in collaboration with Gravity Asset Management, secured an additional rental housing asset near Guro Digital Complex Station in June of this year.

Monthly Rent Replacing Jeonse: Not Even Regulations Can Stop It

The main reason is that, whereas in the past—when the Korean rental housing market was centered on jeonse—it was difficult to manage rental properties as financial assets, the growing share of monthly rent has made it possible to generate steady cash flow.

With the rise in one- and two-person households, demand for small urban housing units that offer proximity to workplaces and good transportation access is increasing, creating a market where global investors can engage in long-term rental businesses.

Some observers predict that the housing regulations tightened in the second half of last year will put the brakes on domestic rental housing investments by global institutional investors. This is because the burden of tax and financial regulations has increased since the October 15 measures, making it difficult to achieve target investment returns. The Korea Capital Market Institute also noted at the time that overseas institutional investors were showing signs of postponing new investments. Nevertheless, industry sources say this has not led to a complete withdrawal from the market.