In recent years, South Korea has emerged as one of the prime investment locations in the Asia Pacific region. It has been rated as the 3rd largest economy in Asia and 11th in the world in terms of market size and growth potential. Not only is the market transparent, but the economy itself is very dynamic, giving ample scope for the growth of the real estate sector.
The globalization of the real estate market is rapidly going on in Korea and Asia. With the emergence of cross-brands, the cross-border transactions will further increase, which indicates great growth potential of the market.
The general consensus amongst the investment community is that Korea has a lot of further growth and development in real estate to come, and will benefit from its pivotal position between the growing markets of China and Japan. Its real estate opportunities are estimated to increase both for local developers and foreign investors. As the size of real estate market in South Korea has expanded rapidly since the beginning of 2000, foreign investment has also been increasing.
Foreign investment began with major office buildings, but recently their interest is moving to the retail market, shopping centers and development opportunities. Foreign investors are now getting more involved in new investment opportunities such as shopping centers and residential complexes in Seoul as well as in other 2nd tier cities. The increasing wealth and living standards in South Korea will also provide new investment opportunities in the leisure and tourism industry.
The real estate market in the country is not as volatile as the neighboring countries and there is a relatively low vacancy rate.
Even with the current anti-speculation policies contracting the real estate market, in the short term, foreign investors are confident that the market for commercial real estate will continue to grow strongly.
It is in this context, that the EUCCK Real Estate Committee which was launched in November 2006 is taking an active role to develop cooperation channels and mutual understanding in the sector. It is therefore significant that the first seminar in 2007 that brought together experts and policymakers to analyze the real estate developments and prospects for this year was devoted to developments in this sector.
The speakers included Mr. George McKay, Representative Director, Colliers International Korea; Mr. Hur Yong-suk, Deputy Minister for Tax & Customs, MOFE; Mr. Lee Hwan-kyun, CEO, Incheon Free Economic Zone Authority; Mr. Park Sam-cheol, Head ABS Affairs Team, Financial Supervisory Service; Mr. Paul Keogh, Head RREEF Korea, Deutsche Asset Management; and Mr. Jeong Sang-kee, CEO Mirae Asset MAPS Investment Management.
As many as 150 participants, both from Korea and abroad attended the half- day seminar, which was followed by a luncheon meeting with Mr. Kim Moon-soo, Gyeonggi Governor (See EUCCK NEWS).

Mr. George McKay, Representative Director, Colliers International Korea
Mr. George McKay, gave a presentation on "The Korean Real Estate Market: Current Assessment & 2007 Forecast."
He began by giving a brief background about Colliers and noted that since 1995, the company has been providing a comprehensive range of real estate services to clients in Korea. Colliers International Korea offers real estate services in Commercial and Industrial: Leasing and Sales, Valuation and Consulting.
The key focus of the business is on multi-national occupiers, where we are in a leading position in terms of the quality of services being provided to such clients.
Among the trends, he said that low vacancy rates for commercial space will continue in Seoul. The ental rates are increasing steadily and more retail space is being converted to office use. At the same time, Korean firms will continue to expand abroad in developing cities across East Europe, Middle East, Asia, North Africa.
Looking ahead, expectation of strong local currency compared to US dollar and Japan Yen is not a favorable condition for the export driven Korea economy. Property values are not expected to increase at the same rate as the past 2 years. The Presidential elections in December 2007 will also lead to uncertainty to the general economy and residential real estate market. Moreover, the North Korea nuclear issue remains unresolved, he said.
Earlier in an interview to Infomag, he noted that as regards the market situation for commercial real estate, the yields are generally higher in Korea than in other low risk markets such as Japan, Hong Kong and Singapore, making it attractive to institutional investors. However, there is less good quality stock available in Korea than in Japan, making Japan potentially more attractive in terms of availability of suitable investment options.
Conversely, yields are lower in Korea than higher risk markets such as China. However, in particular there is less risk of oversupply in the Korea commercial sector than China in general, which again makes Korea, especially Seoul, attractive to investors on a comparative basis.
On the residential property market he said, it is not easy to judge whether there is a real estate bubble in the Korean residential property market. However, it can be said that there are property bubbles in specific areas of the Korean residential market. The major contributing factor of these bubbles is disequilibrium between supply and demand between the varying geographical areas throughout Korea.
Currently, the Korean residential market is experiencing conflicting aspects between the Seoul etropolitan Area (SME) compared to other cities. While smaller local cities indicate sluggish movement due to oversupply, the house prices in the SME are continuing to increase.
The house prices in Gangnam, Seoul have remained upbeat, as Gangnam has continued in its status as the preferred geographical location for residential properties in Seoul. Unbalanced price movements are evident throughout Gyeongbuk and Gyeonggi areas depending on the specific location. Simultaneously some areas are increasing while others are decreasing.
Recently the Korean Government predicted future macro-economic conditions such as GDP growth and consumer spending for the upcoming year. With low growth rates and decreased spending, the prospects for the nationwide residential property market will continue to look dull in coming year. However, the SME, particularly in Seoul and Gyeonggi, is still predicted to experience a strong market due to the ongoing high demand in tandem with the lack of supply, he said.
He observed that the two most popular and widely used government's anti-speculation policies have been: Heavy Tax - an attempt to control home owners from owning more than one property; and Development Control - control over development and transactions by designating speculation zones
Anti speculation policies seem to be inconsistent depending on the political situation at the time the policy is implemented. Ifthe Korean Government plans to stabilize the residential market they must keep true to the implemented policies. If a problem arises the government needs to revise the policy rather than stop it and implement a new one. As such, anti-speculation policies may be able to have an affect, but only if applied in a consistent and long term manner, he said.
In Korea, it is criticized that the pre-sale price on public residential apartments are considerably high. For most, it is not easy to purchase houses through the residential distribution schemes implemented by government, again making it difficult for lower income families to become home owners.
"The government needs to either subsidize the developers or impose strict regulations on the maximum pre-sale price for new housing developments. The rise in pre-sale prices seems to have increased the price in the existing residential market as well," he said.
In the long term, it is necessary that the government implement a policy that will lead to a balanced market between demand and supply. For example, it is recommended that the Korean government strive to secure stable supply through alleviating restrictions on redevelopment and appropriate property financing regulations, so that not just upper income families can afford to purchase homes, he noted.
Mr. Hur Yong-suk, Deputy Minister for Tax & Customs, Ministry of Finance and Economy Mr. Hur Yong-suk spoke on "Korean Tax Policy to Foreign Investors" and noted that for improving the business environment, the tax regime has been streamlined in a way that enhances efficiency of business management. Secondly, appeals procedure has been improved. In case where a taxpayer requests a review of the scheduled assessment made prior to final assessment, but the request fails to be delivered by the deadline, it is now deemed to be valid, as long as the request is sent before the deadline.
Also, 50% of penalty on deficiency is now exempted if such deficiency has been caused for late determination beyond the statutory deadline for the review.
Thirdly, the tax administration particularly regarding tax collection has been improved. To ensure that refund in respect of national taxes is made in a timely manner, the tax authorities will actively find a bank account of a taxpayer to which refund can be made even if he fails to specify the account in his tax return.

"We also plan to introduce a system where advance notification is made to delinquents of national tax in case they are to be restricted from conducting government permission-based businesses due to the delinquency, which will help minimize unexpected damages to the tax delinquent concerned," he said. Fourthly, convenience for taxpayers has been enhanced. More than anything else, VAT taxation system and procedure have been streamlined. Moreover, sales discount is now excluded from the tax base for VAT, which helps reduce tax burden of taxpayers. In an effort to stimulate the real estate market, he noted that the Korean Government allowed foreigners to acquire real estate in Korea back in 1998. In general, foreigners are subject to the same tax treatment as that for Korean residents and companies with respect to the acquisition, holding, or transfer of immovable property in Korea. The area of land held by foreigners as of the end of 2005 is 169 square kilometers, 8.6 times the size of Bundang, new town created near Seoul. The total value is about 26. 145 trillion Won. At the time of acquisition, the acquisition, registration and value added taxes are levied along with such surtaxes as the spe-cial tax for rural development and the local education tax. In total, the taxpayer is required to pay the amount equivalent to 4.3% of the acquisition price as tax associated with acquisition.
At the time of holding, the property tax and the comprehensive real estate holding tax are imposed plus the local education tax as surtax. In general, a taxpayer holding a building is subject to the property tax which is calculated as 0.5-0.78% of the property value.
In the meantime, the comprehensive real estate holding tax, tax on holding housing and land, is levied on non-business land valued more than 300 million won and business land valued more than 4 billion won.
In the case of qualified foreign-invested companies, full exemption of such taxes levied for acquisition and holding of real estate is granted for the first 7 years, followed by 50% exemption for the following 3 years in accordance with ordinance of local governments.
At the time of the transfer of immovable property, the corporate or income tax plus the resident tax as surtax are levied. Regarding the payment of the taxes, the transferee withholds the taxes concerned first and then the transferor files his tax return later, settling the balance.
"The Korean Government will do its utmost to minimize any inconvenience you might experience regarding the tax regime by facilitating interactive communication with you. To that end, we plan to hold a gathering between the Korean tax authorities and foreign investors on a regular basis through which we can directly hear your views on our tax regime," he said.

Mr. Lee Hwan-kyun, CEO Incheon Free Economic Zone Authority
In his presentation on "Global Mixed-Use Development Models inIFEZ," Mr. Lee Hwan-kyun gave an overview of the development plans. Designated by the Government of Korea in 2003 as the country's first Free Economic Zone, IFEZ is an FDI-friendly environment specifically designed for knowledge-based and service industries, and will be the growth engine driving the new Korean economy through the 21st century. It is a master-planned city featuring a working and living environment built to the most demanding standards of international companies competing in today's global economy. IFEZ offers a world-leading logistics infrastructure, cutting-edge ICT network technologies, knowledge-based industrial parks, world class living and leisure in a scenic coastal location and international schools and hospitals in a clean and safe environment. In addition to these advantageous features, IFEZ offers the benefits of a deregulated business environment, streamlined government administration services, and English is an official language, he said Incheon Metropolitan City is where Korea's first modern port, and the country's first gateway to the world, opened in 1883. Today, it is part of the Seoul-Incheon metropolitan area, with a well-educated and affluent population of 23 million, including a highly skilled-labor force possessing a strong work ethic. From Seoul, Incheon is easily accessible by car, subway and bus. Several major international companies have undertaken projects in IFEZ. "The IFEZ is a new growth model for the Korean economy, which is being transformed from traditional industries to high tech and high value industries through foreign investment. A combination of strong bases in logistics, international business, information technology, biotechnology and tourism and leisure, with the optimal location of the sites and superior human resources, will create a model for Korea and the Northeast Asian region," he said. He also said by 2020, when the development plan for the IFEZ is successfully finished, around 4.84 million new jobs will be created to help lower the unemployment rate by 0.2-0.3 percent and a 1-percent increase in the gross domestic product per year.

The IFEZ comprises three designated areas, including Songdo, Yeongjong and Cheongna, with a total area of 51,756 acres.
Songdo has attracted the most attention from foreign investors as the area is being developed as an international business district with knowledge-based information technology complexes, including the Techno Park, a digital entertainment cluster and bio-industry complexes. The New Songdo City, the world's largest privately-run development project, will be home to international businesses and knowledge-based information technology industrial complexes.
An International Convention Center, a 65-story landmark building, office buildings, deluxe hotels, shopping malls and golf course is under construction and scheduled to be completed by the end of 2008.
In addition, the IFEZ made a great achievement last year to host the United Nations-affiliated organization, the Asian and Pacific Training Center for Information and Communication Technology for Development (APCICT) in Songdo.
Also, the New Songdo City International School (NSCIS), the first international school in the country's free economic zones, will open its door to about 2,100 foreign and Korean students in September 2008.
New York-Presbyterian Hospital, the first foreign-based hospital in Korea, will also open in New Songdo City next year to better provide medical services to expatriates as well as locals residing in the zone.
The Yeongjong area includes 13,888 acres of international airport, 4,900 acres of airport support area, 1,740 acres of the Yongyu and Muui tourism complex, and 703 acres of the Unbok Leisure Complex.
The IFEZ Authority is planning to develop a world-class leisure and recreation tourist complex on 1,740 acres in the Yongyu-Muui area of Yeongjong. It will consist of a 319-acre marine world, a 188- acre Dragon City on Yongyu-do and a 947-acre Alice Land on Muui-do.
In the Yongyu-Muui Tourist Complex, the native ecology will be preserved in a natural tourist center, a new concept for a leisure tourist complex. The Authority has signed a $2 billion MOU with AMEC, a U.K.-based civil engineering company, last year to build an international business zone near Incheon International Airport.
Also, the British International School in Shanghai plans to open a school on about 10,000 pyong of land on Yongjongdo next year, with an enrollment of 1,000 elementary, middle and high school students.
The Cheongna Area will accommodate international sports & leisure complex, and a floral complex on 4,420 acres. Construction began in the second half of 2005 with completion targeted for 2008. It will include a beautiful floral complex, a spacious golf course and a sports and leisure complex, to be followed by a theme park and other recreational facilities.

Mr. Park Sam-cheol, Head of ABS Affairs Team, Financial Supervisory Service
Speaking on the Collective Investment in Real Estate in Korea, Mr. Park Samcheol
noted that the governments ongoing efforts to further open the real estate
markets further and related financial sector deregulation have provided opportunities
for foreign investors to integrate their real estate services with their financial
products, such as Asset-Backed Securities (ABS), Mortgage-Backed Securities
(MBS), and Real Estate Investment Systems (REITS) are offered in South
Korea.
The new asset management act (Collective Investment Scheme Act) was enacted in October 2003, consolidating The Securities Investment Trust Business Act; Securities Investment Company Act; and Investment Advisory business related provision.
Previously, investment advisory business and discretionary investment business were regulated under the Act. The Collective Investment Scheme Act provides for a more comprehensive regime governing the management of a wide array of indirect investments in Korea. Under the new law, an integrated set of regulations covers all forms of asset management and is designed to strengthen the protections available to investors so that investor confidence in the asset management industry canbe restored. Also, the law expands the scope of assets covered, including Free Board derivatives products and real estate agricultural products, livestock, marine products, lumber, minerals, energy products, and products derived from the above, as well as any other assets specified in a presidential decree. This allows for the easy expansion of the scope of the new law as new assets enter the marketplace.
As a corollary to the expanded scope of assets subject to management under the new law, various protections have been put into place to safeguard investors' interests, including establishing a system for general meetings of beneficiaries and introducing a corporate directors system for the investment company. The law also provides limits with respect to investments in the same class of assets, as well as on transactions among related parties.
By transferring investment advisory business related provision from the Act to the Collective Investment Scheme Act, the scope of advisory services and discretionary investments is broader and the restrictions on concurrently engaging in other businesses have been strengthened to protect investors.

The Cheongna Area will accommodate international sports & leisure complex, and a floral complex on 4,420 acres. Construction began in the second half of 2005 with completion targeted for 2008. It will include a beautiful floral complex, a spacious golf course and a sports and leisure complex, to be followed by a theme park and other recreational facilities.
Mr. Park Sam-cheol, Head of ABS Affairs Team, Financial Supervisory Service Speaking on the Collective Investment in Real Estate in Korea, Mr. Park Samcheol noted that the governments ongoing efforts to further open the real estate markets further and related financial sector deregulation have provided opportunities for foreign investors to integrate their real estate services with their financial
products, such as Asset-Backed Securities (ABS), Mortgage-Backed Securities (MBS), and Real Estate Investment Systems (REITS) are offered in South Korea.
The new asset management act (Collective Investment Scheme Act) was enacted in October 2003, consolidating The Securities Investment Trust Business Act; Securities Investment Company Act; and
Investment Advisory business related provision.
Previously, investment advisory business and discretionary investment business were regulated under the Act. The Collective Investment Scheme Act provides for a more comprehensive regime governing the management of a wide array of indirect investments in Korea. Under the new law, an integrated set of regulations covers all forms of asset management and is designed to strengthen the protections available to investors so that investor confidence in the asset management industry canbe restored. Also, the law expands the scope of assets covered, including Free Board derivatives products and real estate agricultural products, livestock, marine products, lumber, minerals, energy products, and products derived from the above, as well as any other assets specified in a presidential decree. This allows for the easy expansion of the scope of the new law as new assets enter the marketplace.
As a corollary to the expanded scope of assets subject to management under the new law, various protections have been put into place to safeguard investors' interests, including establishing a system for general meetings of beneficiaries and introducing a corporate directors system for the investment company. The law also provides limits with respect to investments in the same class of assets, as well as on transactions among related parties.
By transferring investment advisory business related provision from the Act to the Collective Investment Scheme Act, the scope of advisory services and discretionary investments is broader and the restrictions on concurrently engaging in other businesses have been strengthened to protect investors.

Mr. Paul Keogh, President, RREEF Korea, Deutsche Investment Trust Management Company
The South Korean property market's growth prospects are good because of higher institutional and retail demand for real estate investment products, said Mr. Paul Keogh, in his presentation on
"Regional Perspective of Korean Real Estate Market."
He noted that investment Into real estate has increased, investor origin has diversified, property values
have risen, and the domestic indirect investment market has developed "The market has been slow to develop since the enactment of the K-REIT and CR-REIT legislation in 2001, largely as a result of regulatory constraints. Amendments to the CR-REIT legislation and enactment of the new Real Estate Fund ("REF") legislation in 2004 has eliminated many of these constraints.
The products have been well received by both institutional and retail investors," he said. He said that insurance companies and banks remain hungry for high yielding, stable assets. The Korea National Pension Fund has been permitted to invest in real estate (total assets of approx. KRW 160 trillion with no meaningful current real estate exposure).
Other government pension funds are expected to follow suit The historic lack of indirect real estate investment product has led to pent-up demand. Products brought to market thus far have been well received. It has also become increasingly difficult to speculate on real estate through the residential market.
The desire for alternative investment products because traditional products are offering low yields. Korean households have historically held more than 50% of their assets in fixed deposits and bonds.
Much of the existing institutional quality property stock is old in the office, retail and residential sectors. New development is supported by upgrade demand as well as net positive absorption, while tenants/consumers have become more sophisticated.
The key challenges for investors, he said that significant capital, both domestic and foreign, is pursuing limited quality opportunities.
Although additional opportunities are anticipated as the market shifts from an owner occupier to an investor market, the shift will be an evolution rather than a revolution.
"Development opportunities require local knowledge, whether through a capable joint venture partner or proprietary on the ground resources. Certain sectors of the market are fully priced ?≠ rents and occupancy are at cyclical highs and yields are at a cyclical low," he said.
The regional markets are even less transparent than the Seoul market, he said. Real Estate investment vehicle legislation in Korea was promulgated at approximately the same time as similar legislation in Singapore and Hong Kong. However, real estate investment products in Korea have not experienced the same growth.
Some of the reasons for more subdued growth of products in Korea include Low Seller Liquidity ?≠transaction volume in Korea is still relatively low when compared to neighboring markets such as Japan, Singapore and Hong Kong; and Transparency?≠ research and transparency has improved significantly in Korea in recent years. But low transaction volume and the relatively emerging nature of the industry limits the amount and accuracy of available data.
Further, regulators continue to legislate to protect smaller investors, thereby restricting the creation of blind or discretionary funds and fully diversified real estate asset management companies (ie. Companies that are permitted to undertake development, asset management and investment) What is needed to accelerate the growth of the real estate investment product market in Korea is increased asset availability, investor education, and continued regulatory development ?≠ permit the development of infinite life, open-ended and discretionary investment product.
"The future prospects for growth are good. Korea has a sizeable stock of institutional quality real estate There is significant institutional and retail demand for real estate investment product. Existing asset owners have begun to divest, but expect an evolution rather than a revolution," he said.