Real estate investment down as country gears up for presidential election, rate hikes

Local property magnates are staying away from investing heavily in the country's real estate as South Korea braces for an early presidential election and possible interest rate hikes, market watchers said Thursday.

"Big time investors are currently taking a cautious position ahead of changes, although they still have a keen interest in the realty industry," an analyst at a Seoul bank said.

The US Federal Reserve raised the key interest rate by 25 basis points to a range of 0.75 to 1 percent Wednesday, signaling additional hikes down the road to reflect positive developments in the US economy.

Observers have predicted South Korea may have to follow suit in the near future, although the Bank of Korea made clear that it won't respond "mechanically" to the US rate hikes.

The May 9 presidential election is another major factor affecting the country's real estate market.

"The rich are paying keen attention to possible changes in the next government's real estate policy ahead of the presidential election," said Park Hap-soo, an analyst at KB Kookmin Bank. "They are refraining from aggressive investments as the presidential hopefuls with high approval ratings in opinion polls have pledged tax hikes for the rich, real property tax increases and other policies unfavorable to property owners."

The rich, however, are still looking at small buildings and apartments under reconstruction in the affluent Gangnam district in southern Seoul, industry sources said.

"Investment in real estate still remains the safest and surest portfolio for the rich because small buildings guarantee about 3 to 4 percent in annual yields," said Ko Jong-wan, an analyst at the Korea Asset Management Corp. (Yonhap)