• How to Buy Industrial Real Estate in Korea: A Full Guide

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    Korea is one of the most developed countries in Asia and has seen a great transformation in the past decades. A few decades back, it had a similar GDP per capita as the Philippines. After the war, it was even one of the poorest countries in the world.

    Over the years, industries like shipbuilding, transportation, automotive, and consumer goods are just a few examples where Korea has positioned is self as a market leader.

    Having one of the fastest-growing eCommerce markets globally, the logistics industry is transforming as well. This is something I will tap into later in this article.

    Today, we review how foreigners can invest in industrial real estate and warehouses in Korea.

    Topics covered:

    • Can foreigners buy industrial real estate in Korea?
    • Korea’s Industrial Real Estate Market
    • Primary Industrial Clusters
    • How can I find industrial real estate for sale?
    • Taxes

    Can foreigners buy industrial real estate in Korea?

    Foreigners have no particular restrictions to invest in industrial real estate in Korea, you can even own land on a freehold basis.

    With that said, there are some regulations you have to abide by.

    There are different acts issued by the government that limits investors from buying real estate in sensitive and protected areas.

    As I have covered this topic in several other articles, like how to buy commercial real estate in Korea, I will not go into greater detail about the acts today.

    Examples of industrial property types include:

    • Industrial land
    • High-tech and industrial manufacturing facilities
    • Logistics centers and warehouses
    • R&D and data centers

    While there’s a high density of industrial properties and warehouses in and around Seoul, you can also find many investment opportunities in Busan, which has one of the busiest ports in the world, The Port of Busan.

    It was built as early as 1876 and only had strict trading between China and Japan at a start.

    Korea’s Industrial Real Estate Market

    Korea’s industrial real estate market and particularly the logistics sector is predicted to see great growth in the coming years. The main reason for this is the eCommerce penetration rate which is the highest globally, currently at around 18%.

    The rate is predicted to reach well above 30% soon and the country also has one of the biggest third-party logistics markets in APAC, growing at 7.8% annually.

    That outperforms neighboring countries such as Australia, Japan, and Singapore.

    Big local eCommerce marketplaces that dominate the market include Coupang, Wemakeprice, 11street, G-Market, and TMON. They account for a significant size of the market and keep on driving the demand for logistics facilities in urban areas.

    In addition to its growing eCommerce market, it’s said that we will see increasingly more development and refurbishing of small-sized and vacant land plots and old buildings in urban areas.

    The properties are sometimes not used but can be converted into logistics facilities, for example, as these are connected to public infrastructures like wastewater, water, and transportation facilities.

    The Increasing Demand for Cold Chains

    While the retail market was hit badly during the COVID-19 crisis, we see an increase in the demand for fresh food which requires cold storage and cold chains.

    A reason why we sentiments to invest in cold chains in APAC is that the growth potential is big thanks to the limited amount compared to Western countries.

    Operators of cold chains tend to opt-in for longer leases and stay in the same premises for a longer period.

    In addition to Korea, countries and cities that will see a growing need for cold chains include Singapore, Japan, Hong Kong, India, and mainland China.

    Primary Industrial Clusters

    Several of Korea’s large-sized cities have emerged as industrial clusters and where we see much commercial activity.

    Below you can find the most interesting cities where foreign companies invest in industrial real estate and warehouses in Korea.

    Seoul

    Seoul is the home of around half of South Korea’s population and the city is well-connected with other regional cities, like Incheon. It doesn’t come as a surprise that Seoul tops this list.

    During the COVID-19 pandemic, the demand for logistics facilities has surged due to a growing eCommerce market. This trend was predicted even before the pandemic but accelerated greatly during the crisis.

    So-called third-party logistics companies occupy more than 50% of the available logistics space, while eCommerce marketplaces have a market share of around 24.6%.

    As such, these two industries account for around 75% of all the leasable Grade A logistics space in Greater Seoul.

    The Growth of eCommerce in Greater Seoul

    According to CBRE, eCommerce marketplaces search for logistics facilities that are within urban areas and 30 km or less from Seoul.

    The background of this is the need for quick deliveries, which become shorter and shorter based on customer requirements. The demand for logistics centers located in the city center is predicted to grow in the coming years.

    Colliers also highlights that companies should review their strategies to collaborate with companies specialized in last-mile logistics infrastructure for the lower shipping volumes and multi-product transactions.

    Busan

    On the contrary to Seoul, Busan is located in the Southern parts of Korea and a coastal city.

    Being the second-biggest city, it has a more relaxed vibe and a leader in shipbuilding. The city is mostly known for its industrial activities, compared to that of Seoul which attracts many travelers too.

    Busan alone handles 90% of all shipbuilding and shipbuilding parts production, 45% of automobile production, and 40% of manufacturing operations in general.

    If you’re involved in manufacturing and especially in the shipping industry, then Busan should be at the top of your list.

    Incheon

    Incheon is one of the biggest cities in Korea as well and located to the West of Seoul, facing the ocean. It has the third-biggest population after Seoul and Busan and has received much attention in the past years.

    Incheon serves as the gateway for exports of goods produced in the Greater Seoul area and it’s most famous for being the home of the biggest airport, Incheon Airport.

    The economy is primarily driven by the transportation and manufacturing industries, accounting for around 11% and 25% respectively. It played an important role during the industrialization of South Korea.

    The city has been heavily reliant on the manufacturing industry as it served as many industrial complexes were set up here after the war.

    Other Cities

    In addition to Seoul, Busan, and Incheon, we also see an increased supply of logistics facilities in the southern area of Korea and Icheon, Yongin, and Anseong.

    Much of the supply comprises mixed developments, including dry and cold facilities.

    How can I find industrial real estate for sale?

    Despite being a developed and highly digitized country, it can be challenging for foreign companies to find industrial real estate and warehouses for sale in Korea.

    International real estate companies do operate in Korea, but you rarely find listings available on the websites.

    The few amounts of websites that provide listings only have a handful of options, often presented in Korean.

    A preferred option when looking for industrial real estate and warehouses is to find a local partner first. Yet due to communication issues foreigners sometimes have difficulties finding companies that can help.

    Asia Property HQ has experienced first-hand how difficult it can be to find partners that are willing to help you invest in real estate in Korea.

    If you look for industrial real estate and warehouses for sale, such as logistics facilities, feel free to send us a request through the form below and we will assist you earliest possible.

    Taxes

    Commercial real estate investors are subject to pretty much the same taxes as residential property investors. But, the rates can change depending on property types and whether you are an individual or corporate investors.

    Below I have made a simplified overview of the taxes investors generally have to pay when investing in industrial real estate in Korea.

    Keep in mind that rates change frequently and that additional taxes might apply. You should confirm your tax obligations with a local partner before the purchase.

    Stamp Duty

    Investors have to pay a stamp duty which is charged due to the transfer of documents related to the ownership of the property. The value ranges up to around USD 320 and is therefore almost negligible.

    Property Acquisition Tax

    In addition to the stamp duty, investors also have to pay an acquisition tax of 4.6%. The rate is multiplied by the sales value and paid by the buyer.

    Value Added Tax (VAT)

    A value-added tax of 10% is charged to the seller. As you will most likely invest in commercial real estate as a corporation, proper due diligence should be done beforehand for reimbursement purposes.

    Capital Registration Tax (Capital Duty)

    When companies raise capital or register their incorporations, a so-called capital registration tax of 0.48% is charged to the buyer. In Seoul, the rate goes up to 1.44%.

    Annual Property Tax

    An annual property tax of 0.15% to 0.50% is charged to owners and the rate is multiplied by the assessed value. Keep in mind that the value and the location of the unit will determine the final rate.

    Capital Gains Tax

    A capital gains tax of 11% for sales / 22% for gains is charged, whichever value is lower.

    That’s it for today. I hope that you found this article useful and interesting. I also recommend you to read my separate guide that explains how foreigners can invest in REITs in Korea.

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