Morgan Stanley, KKR, and ICG bet on South Korea’s growing rental housing market

Global investment giants see opportunities amid shifting rental housing trends in South Korea

Illustrated by Kim Sung-gyu

Morgan Stanley, a leading global investment bank managing assets worth $1.6 trillion, has entered the rental housing market in South Korea. U.S. global investment firm Kohlberg Kravis Roberts (KKR) and British alternative asset manager ICG are also acquiring residential properties in Seoul for rental purposes.

Global investment giants are showing interest in Korean residential properties as the country’s rental housing market shifts from traditional lease arrangements - known locally as “jeonse” - to monthly rental contracts. The change is driven by a rise in single to two-person households and mounting concerns over jeonse fraud. This transition has caught the attention of global asset managers who see long-term growth potential and a profitable investment opportunity.

Morgan Stanley owns GWell Homes Life Gangdong, a one-room rental housing complex in Gil-dong, Gangdong-gu, Seoul. The complex will welcome its first tenants at the end of this month. The investment bank acquired the building, which had been completed in 2016 and left abandoned following the bankruptcy of its original developer, for 13.3 billion won ($9.6 million) in July in a public auction with local asset manager Gravity Asset Management. Morgan Stanley has since partnered with rental operator SLP to remodel the building into a rental housing complex. The units come fully furnished with furniture and appliances, and the building offers amenities such as a fitness center and a resident relaxation area, which are rare in typical one-room rentals.

“Monthly rent is about 100,000 to 200,000 won higher than the average nearby one-room housing prices, but high-income individuals have been showing interest,” said an SLP representative. “They are assured that leasing from a company minimizes the risk of rental scams and fraud.”

Foreign capital has traditionally focused on commercial real estate investments in Korea, including office buildings, hotels, and shopping centers. But as office property investments have taken a hit since the pandemic, investors have turned their attention to Korea’s rental housing market. Some firms have set up dedicated teams or opened new offices in Seoul to bolster their investments in the country. The downturn in China’s real estate market and growing U.S.-China tensions have also been cited as factors boosting investment in Korea.

Recently, Morgan Stanley expanded its portfolio by acquiring a 195-room office building in Doksan-dong, Geumcheon-gu, and a 60-room property in Anam-dong, Seongbuk-gu, Seoul. The bank plans to convert these buildings into modern rental housing in partnership with SK D&D and Homes Company, tailoring them to reflect Seoul’s urban residential trends. Morgan Stanley’s total investment in Korea’s rental housing market is estimated at 60 to 70 billion won.

KKR also made a move earlier this year by establishing a joint venture with Hong Kong-based Weave Living to invest in rental housing in Korea. In March, it acquired The State Sunyu Hotel in Yangpyeong-dong 5-ga, Yeongdeungpo-gu, and plans to reopen it as a luxury residence next month. In July, KKR purchased a 98-room office building in Huigyeong-dong, Dongdaemun-gu, converting it into a rental property named Weave Place Hoegi.

ICG raised a 300 billion won fund last year with local real estate operator Homes Company. The British asset manager has been purchasing hotels and office buildings in Suwon, Gyeonggi-do, and Seoul’s Gasan, Gangnam, and Myeongdong areas and remodeling them into rental housing. ICG, which has been operating its Asia-Pacific headquarters from Singapore, plans to open a local office in Korea later this year to strengthen its investment activities in the country.