The South Korean property market is transforming significantly, projected to reach a value of $12.39 trillion by 2025, with foreign investors increasingly shifting attention from China to its North Asian neighbour. Lawyers say that success in this evolving market requires stricter compliance measures and strong adherence to international standards, including comprehensive due diligence processes.
- Korea’s real estate market is poised for significant growth in 2025 as projected interest rate cuts buoy investors
- Foreign investment is rising as investors pull back from China, with mixed performance across residential, commercial, logistics, and hotel sectors
- Compliance and due diligence are key priorities, with focus on ESG and international standards
South Korea’s property market is undergoing a remarkable transformation, characterised by dynamic shifts in market forces, regulatory frameworks, and investment patterns. By 2025, it’s projected to be worth $12.39 trillion, signalling robust growth momentum fuelled by macroeconomic tailwinds and consumer demand.
While this sounds promising, this growth story isn’t straightforward. Different sectors of the market are performing at varying levels, creating a complex landscape of opportunities and challenges, according to consultancy CRBE.
On the financial aspect, the Bank of Korea is considering lowering interest rates, which could make borrowing more affordable for both domestic and international investors. However, these potential rate cuts aren’t guaranteed – they’ll depend on how both the Korean economy and the global financial markets perform in the coming months. All of that means uncertainty and volatility will likely persist, as well as cloud market development.
SECTORAL PERFORMANCE
Looking at different areas of the market, Kang Dongwon, CEO of Korean real estate boutique firm Kang & Partners, points out several significant developments reshaping the property landscape.
One of the most notable changes is happening in urban areas, where older neighbourhoods are getting complete makeovers. “Urban regeneration projects in ageing metropolitan areas have gained substantial momentum, creating increased demand for legal expertise in property rights and permit requirements,” says Kang.
The residential segment is expected to play a dominant role, with an $8.44 trillion forecast this year spurred by a rising demand for luxury apartments in major cities, according to market data.
Meanwhile, after weathering a challenging period, the commercial real estate sector is now showing signs of recovery, aided by potential interest rate cuts. While Korean investors have been somewhat hesitant, this situation has created an unexpected opportunity for international investors to enter the market at attractive prices.
“Urban regeneration projects in aging metropolitan areas have gained substantial momentum, creating increased demand for legal expertise in property rights and permit requirements.”
- Kang Dongwon, Kang & Partners
“The lack of liquidity within the Korean real estate market, coupled with various factors, including foreign investors retreating from China’s real estate sector, has prompted a shift toward Korea as an alternative investment destination for foreign investors, contributing to a steady increase in foreign investments across both equity and debt financing,” says Sungtae Park, partner at Korean law firm Bae, Kim & Lee (BKL).
Hence, the diversification of investment sources, particularly from sophisticated international investors, is expected to not only address the previous liquidity constraints but also introduce advanced investment practices and potentially higher valuations, setting the stage for robust market growth in 2025.
Other sectors present a mixed picture. The logistics sector, for instance, faces some challenges with a significant 23 percent vacancy rate, though experts predict gradual improvement, a CRBE report shows.
“The logistics market remained active, particularly in transactions involving prime centres and (Nonperforming Loans), despite ongoing challenges related to oversupply,” points out Park. Rising construction costs may also lead to decreased future supply.
The hotel sector, on a more positive note, is experiencing a remarkable recovery, driven by increasing international tourism. “This resurgence occurred without the contribution of Chinese tourists,” says Park. The potential return of Chinese visitors suggests further growth potential, attracting investor interest in hotel acquisitions and investments.
Moreover, new types of properties, such as data centres, senior housing, and co-living spaces, continue to demonstrate strong growth potential, adding diversity to traditional real estate investments. These emerging sectors are attracting both domestic and international investors looking for fresh opportunities.
COMPLIANCE IS KEY
As Korea’s property market becomes more international, following regulations correctly has become crucial. Foreign investors are particularly focused on conducting thorough property checks and compliance with all relevant rules.
For instance, foreign investors are advocating for stricter adherence to applicable laws and regulations, including ABAC, AML, and sanction laws. “This heightened focus reflects a broader demand for transparency and accountability, ensuring that investment is safeguarded against legal and regulatory risks,” says Park.
In light of foreign investment regulations, Park believes Korea’s foreign exchange filing regime has been perceived as less favourable to foreign investors compared to some jurisdictions, with significant discretionary power held by the relevant authorities. This discretion can create uncertainty in cross-border transactions, highlighting the need for clearer guidelines and more predictable outcomes.
Adds Kang: “The legal framework must strike a delicate balance between ensuring regulatory compliance and fostering sound investment opportunities,” he says.
To keep pace with international standards, Korean legal service providers also need to evolve their service offerings to include international perspectives and become familiar with global transaction tools such as warranty and indemnity (W&I) insurance.
“W&I insurance was traditionally overlooked by local investors in real estate transactions due to various factors, including the well-established court property registry,” explains Park.
“However, foreign investors have introduced W&I insurance into the Korean market, and we anticipate a rise in its utilisation in local real estate transactions moving forward, especially in cases where foreign investors are involved.”
Moreover, environmental considerations have also moved to the forefront of property dealings, as demonstrated by the emergence of ESG-centred real estate development, adds Kang.
This represents a significant shift from past practices. “Historically, parties often addressed environmental concerns solely through representations and warranties,” explains Park. However, buyers and sellers are now choosing to do more thorough environmental inspections before completing the deal.
This practice could help protect both parties from potential environmental problems that might come up after the selling company has been dissolved. “This approach includes the establishment of specific remedy mechanisms and the consideration of separate insurance policies to mitigate risks associated with environmental issues,” says Park.
As the Korean property market is clearly becoming more sophisticated and internationally oriented, it is creating new demands for law firms and other professional service providers.
Park notes that in the past, lawyers were often asked by their clients to keep property inspections and legal checks simple and limited. But now, for investors, the increasing internationalisation of Korea’s real estate market means enhanced need for cross-border expertise, adaptation to global best practices, integration of ESG considerations, and understanding of international transaction standards.
“The current landscape underscores the critical need for a more comprehensive approach to due diligence processes in order to protect the interests of all parties involved in real estate transactions,” adds Park.
Looking ahead, the Korean real estate market appears set for continued growth and internationalisation. Park cautions that local investors need strong legal support when dealing with international counterparts, as cultural and procedural differences can complicate negotiations. Success in this evolving market requires an understanding of both Korean and international property practices.
