There was a time when overpasses in downtown Seoul were considered a symbol of industrialization. However, as the gray steel structure built for its own needs has been reduced to a nuisance complex that harms the aesthetics of the city, demolition work is underway in Seoul. The same goes for the mineral water overpass, which was demolished last summer after 30 years. Six months after the demolition of the mineral water overpass that connected Seoul's Geumho Tunnel and Jangchung Gymnasium, the atmosphere around the mineral water area in Sindang-dong, Seoul, was truly refreshing. Desolate commercial districts have regained vitality, and the rental market for officetels and urban living housing is also booming. 

In the area of Yaksu Station Intersection, which I visited on February 24, a five-story building that had just been remodeled showed off its exterior, and about 160 stores near the intersection replaced old and outdated signs with LED signs, making the neighborhood atmosphere brighter. There are several coffee shops where you couldn't even see a shadow before. A large coffee shop brand opened in the place where the old bakery used to be, and competing businesses were located diagonally across from it. A new building has been built where the auto repair shop used to be, and new restaurants and franchise beer houses have opened nearby. 

Sindang-dong mineral water reservoir demolished after 30 years 

Building sales rise and supply of studio apartments increases 

One-room rental yield of 6% or higher is possible 

If you go a little down the alley, construction of new officetels and urban living homes is in full swing here and there. Existing single-family homes or old multi-family homes are torn down and new 3- to 6-story one- and two-room rental homes are built. 

An official from Real Estate Agency A in Shindang-dong said, “There are many inquiries about whether rooms are available for urban living houses and officetels under construction in the residential area of Dongho-ro even before completion. “In particular, students from nearby Dongguk University who are about to start school, newlyweds, and single people mainly visit,” he said. 

The turbulent real estate market atmosphere is also reflected in market prices. 

The selling price of commercial buildings has risen significantly. An official from another B real estate agent office in Shindang-dong said, “The price of commercial buildings near the intersection, which was previously around 50 million won per 3.3㎡ based on land, has now jumped to 80 million won. “There are talks of up to 100 million won per 3.3 m2 for a nice place close to the main street, but the building owners have absolutely no intention of selling the building,” he said. A merchant who runs a restaurant in Sindang-dong said, “As demolition work began on the overpass, the building owner asked to increase the deposit by 20 million won. “It is true that it is a burden, but the atmosphere in the commercial district is good these days, so I am willing to listen,” he confessed. 

The transaction volume of single-family and multi-family homes in Sindang-dong also increased significantly. 

According to the Seoul Real Estate Information Plaza, a total of 109 single-family and multi-family homes were traded in Sindang-dong, a weak water area, last year. Of the total transaction volume (269) in Jung-gu, 40% was traded in Sindang-dong. Compared to only 53 cases in 2012 and 63 cases in 2013, the transaction volume doubled. “Investors are increasingly purchasing single-family and multi-family homes for the purpose of building new rental homes,” explains a nearby real estate industry source. 

With the exciting atmosphere, the sale prices of nearby apartments are also on the rise. According to Real Estate 114, the sale price of apartments in the Sindang-dong area was 15.84 million won per 3.3㎡ as of the end of February, a slight increase from the same month last year (15.51 million won). Although there are many old complexes built mainly between the 1990s and early 2000s, they are maintaining a steady upward trend. 

Real estate in the Yaksu area, which has been revitalized for a long time, is expected to continue its momentum in the future. This is because real estate in the Yaksu area does not have steep increases in sales prices or rents, but it has its own advantages. 

Jae-ho Yoon, CEO of Metro Consulting, analyzed, “Because the land available for new buildings is limited in the Yaksu area, there is no concern about oversupply of commercial or rental housing, and market prices are also stable.” 

The location isn't bad either. 

The Yaksu Station area is in the center of Seoul and has good transportation conditions, with subway lines 3 and 6 passing nearby and Cheonggu Station on lines 5 and 6 passing nearby. In particular, Sindang-dong, where Yaksu Station is located, is adjacent to Dongho Bridge, so it has good accessibility to Gangnam and is close to Yongsan, the center of the Gangbuk area. Nearby, there are many factors that can attract population, such as Dongdaemun Design Plaza in Seoul, which opened last year, Jangchung Gymnasium, which opened after remodeling early this year, Shilla Hotel, Shilla Duty Free Shop, Dongguk University, the National Theater, and parks. 

Kim Min-soo, CEO of R Asset Asset Management, said, “It is true that the Yaksu area had few residential facilities compared to the location conditions, and even those were mainly old houses and shops, so the environment was poor. “As remodeling progresses following the demolition of the overpass, new houses are built, and the resident population increases, it is highly likely that this will naturally lead to revitalization of the commercial district, so it is worth considering investment,” he said. The fact that maintenance projects such as redevelopment of Sindang District 10 are progressing is also good news for the local real estate market. 

How should I invest? For officetels and urban living housing, there are two ways to purchase single-family or multi-family housing land and build a new building directly, or purchase a completed building. 

When purchasing residential land and building a new rental home, the land purchase cost and construction cost must be calculated together. In general, the construction cost of an urban living house is expected to be around 4 to 5 million won per 3.3㎡, including design, construction, and overhead costs. 

For example, if you purchase a 200㎡ piece of land for 1 billion won and build a 3-story one-room urban living house with 12 rooms and 5 parking spaces, the construction cost will be about 400 to 500 million won. If each room receives a deposit of 20 million won and a monthly rent of 500,000 won, it is possible to generate a rental income of 5.7 to 6.21 TP3T per year. If you already own land, the rate of return is even higher. 

There is also an option to purchase a completed building, but there are not many properties on the market. If the building is four stories above ground and can accommodate 20 studio-style rooms, it can be purchased for about 2 billion won. Assuming that there are no vacancies and that 20 rooms receive a total deposit of 450 million won and a monthly rent of 6 million won, annual rental income of 4.6% can be earned. If you borrow 500 to 600 million won using a low-interest loan (based on an interest rate of 3.6%), you can easily achieve a rate of return of more than 5%. 

The same goes for shopping malls. However, there are very few commercial buildings in the Yaksu Station area that are registered separately, so the entire commercial building must be purchased, which has the disadvantage of requiring a large investment and making it difficult to find properties for sale. Another variable is that it is difficult to determine the exact market price because there have been few recent transactions. 

“If you have time and money, you should wait for a property for sale, and even if there is a property for sale, you should carefully calculate the rental return on investment. “As there are many old buildings, it is not a bad idea to consider remodeling or repair costs.” This is a tip from Jang Jin-taek, director of Remax Korea. 

Nevertheless, if you want to invest in a commercial area, it would be better to keep in mind that the commercial district map has changed with the demolition of Yaksu Overpass. For example, as the location of the crosswalk under the overpass changed, some stores had their license fees cut in half or sales were less than two-thirds of the usual amount. On the other hand, there are some places where the atmosphere has been reversed thanks to the construction of a crosswalk right in front of the store. 

Kwon Kang-soo, director of the Korea Startup Real Estate Information Service, said, “Even in the same Yaksu Station area, the joys and sorrows of the commercial district can vary depending on the exit. “Before investing in a commercial space, it is necessary to consider the floating population and consumer base more closely,” he advised. 

[Reporter Jeong Da-un jeongdw@mk.co.kr / Photo: Reporter Gwan-sik Yoon] 

[This article is from Maekyung Economy No. 1797 (dated March 4, 2015 - March 10, 2015)]