With the real estate market in recession, is it only the building market that can be considered a promising investment product? While most real estate markets, including apartments and land, have entered a lull, the Gangnam building sales market is showing strong performance alone, attracting the attention of investors.

The reason buildings are popular as investment products is because they are positioned as safe assets. In the process of overcoming major challenges such as the foreign exchange crisis in 1997 and the global financial crisis in 2008, the perception that building prices do not fall over a long period of time has become established among investors.

Accordingly, institutional investors and individual investors with large amounts of assets choose buildings as their most preferred investment item. 

In real estate, location determines everything. So, where is the best location in the current building market? The industry usually does not hesitate to select the three areas of downtown Seoul, Gangnam, and Yeouido as blue chips in the building market.

If the investment amount is more than 3 billion won, it is worth trying to purchase a building in key areas such as downtown Seoul, Gangnam, and Yeouido. However, considering that the vacancy rate has recently soared in Yeouido and the city center and that building supply will continue to occur in the future, it seems safer to direct investment toward Gangnam.

In Gangnam, the section of Yeongdong-daero that runs from the southern end of Yeongdong Bridge to Hangnyeoul Station on Line 3 is a relatively undervalued area.

Thanks to the pleasant environment in this area, tenant preference is high and the vacancy rate is low. It is also a direct beneficiary area of the KEPCO site development project. Therefore, this region is expected to have great growth potential in the future.

In particular, the area around Samseong Station is expected to emerge as a popular commercial district comparable to Gangnam Station, as there are positive factors such as the opening of GTX, KTX, and Line 9 in addition to the development of the KEPCO site.

If the investment amount is around 1 billion to 2 billion won, it is worth targeting local areas or the metropolitan area. However, careful investment is required in large regional cities such as Busan and Daegu. This is because it is more sensitive to the effects of the economic slowdown than Seoul and the metropolitan area, and continuous rent increases cannot be expected due to population and income decline.

On the other hand, it is worth considering investing in central business district buildings in cities with a solid industrial base and growth engines, such as Ulsan, Changwon, Sejong, and Pyeongtaek, because rent increases can be expected. 

Meanwhile, investing in buildings also has risk factors. First of all, unlike the building sales market, the rental market is in a serious recession. Since last year, the rising vacancy rate and falling rent in the Seoul area have become established trends. This means that a red flag is being raised regarding the rate of return on investment in buildings. The explosive increase in office building supply is also a burden.

Accordingly, a defensive investment strategy is advisable until you are certain that there will be a profit. To avoid the risk of further decline, the key is to lower the purchase price as much as possible.

It is best not to select a property unless it is for quick sale at a price of about 10% compared to the market price or a property with a clear tenant. In addition, the proportion of leverage through bank loans must be lowered and investments based on surplus funds must be made. Investing with borrowed money involves significant risk.

In addition, a comprehensive preliminary inspection of market variables such as economic fluctuations, demand forecasts, and regional supply and demand structures is also essential. For example, areas outside the city center where demand is limited and tenants do not have high financial power are relatively risky.

In particular, considering the possibility of differentiation or polarization in the future, it is time to select a strategy through absolute compression of investment areas and targets. 

Original link: http://www.newsway.co.kr/view.php?tp=1&ud=2014102015175732548