Morgan Stanley, KKR bet on historic changes for South Korean renters
Apartments in Seoul are generating returns of around 4.5 to 5.5 per cent, almost double Tokyo’s yield, CBRE data show
[SEOUL] KKR and Morgan Stanley are pouncing on the biggest shift in decades in South Korea’s US$153 billion residential rental market that’s presenting a rare opportunity to global institutions.
In the last two months, KKR has bought an apartment block in one of Seoul’s most affluent neighbourhoods, while M&G Real Estate announced its first-ever residential property investment in South Korea. Morgan Stanley has teamed up with local manager, Gravity, to buy smaller homes.
Large foreign players are seeking to take advantage of a pivot in South Korea away from a decades-old system known as ‘jeonse’, where tenants pay a large lump-sum deposit instead of monthly rent. That’s giving global firms a reliable cash flow from Seoul’s buoyant market of renters.
“From an institutional perspective, South Korea’s residential rental market has just begun,” said Bae Seho, an analyst at iM Securities. “As aversion to the jeonse system intensifies, the monthly rental market available for corporate investment is bound to expand further.”
Earlier this year, Canada Pension Plan Investment Board and MGRV, a South Korean rental housing provider, formed a 500 billion won (S$460 million) joint venture to develop rental housing projects in South Korea. The venture has spent a third of its capital to develop four projects and aims to complete the investment this year, and expects the total investment to reach one trillion won, MGRV said.
Apartments in Seoul are generating returns of around 4.5 to 5.5 per cent, almost double Tokyo’s yield, CBRE data show. Some smaller units in prime districts are delivering as much as 6.5 per cent, according to local analyst estimates.
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South Korea’s residential property sector is forecast to grow to US$437.6 billion by 2030, from about US$402 billion in 2025, according to Mordor Intelligence. Rentals make up some 38 per cent of the market, or around US$153 billion.
A government push in recent years has reduced the country’s reliance on the jeonse rental system, that’s existed for much of the postwar era. Criticised for being open to scams and frauds as well as being harder to access for lower-income workers, a more typical rental payment system is helping to boost investor appeal.
The sector is also getting a kicker from changes at index provider MSCI, broadening its South Korea property gauge beyond offices to include residential and healthcare assets and boosting its appeal to global money managers.
Demographic shifts are adding to the opportunity. South Korea’s elderly population is set to nearly double by 2050, yet senior housing penetration remains below 1 per cent, compared with 6 per cent in Australia and 11 per cent in the US, according to Invesco.
Invesco launched Care Operation last year, a joint venture with local operator Caredoc, to run senior living properties.
“The surge in the elderly population is creating unprecedented demand for senior housing and care facilities,” said Gideon Lee, Invesco’s head of Asia-Pacific acquisitions. BLOOMBERG
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