20161013-三星证券-Developers_evolving_amid_a_shifting_paradigm_55页_1mb

Sector Update Summary

Core Content

This report provides an analysis of the evolving Korean real estate development market, highlighting the shift from traditional constructor-led presales to developer-led rental operations. It explores the new normal in the housing market, including changes in demand patterns, policy shifts, and the increasing need for urban regeneration due to aging infrastructure. The analysis also draws lessons from the Japanese real estate market, identifying potential growth drivers such as urban regeneration, tax benefits, and high vacancy rates. The report concludes with an evaluation of three key companies: Hyundai Development Co, SK D&D Co., Ltd, and Emerson Pacific, and their potential to thrive in this new landscape.

Main Points

• Market Shift: The Korean real estate market is moving from a speculative, constructor-led model to a more demand-driven, developer-led rental model. This change is influenced by oversupply, policy adjustments, and changing consumer preferences.

• New Normal:

  • Demand Diversification: Smaller and medium-sized dwellings are becoming more popular due to demographic shifts and higher liquidity.
  • Rental Preference: Monthly rent is gaining traction over jeonse (a traditional deposit-based lease system), especially as housing prices stagnate and interest rates fall.
  • Urban Regeneration: With a significant portion of buildings aged over 25 years, urban regeneration is becoming a key growth driver, as it is more cost-effective and sustainable than full redevelopment.
  • Policy Change: The government is shifting focus from promoting home ownership to nurturing the rental market, introducing policies to support both private and corporate landlords.

• Policy Drivers:

  • Housing Regulations: Stricter lending guidelines and limits on jeonse deposits are making it harder for speculative buyers, pushing the market toward more stable and sustainable investment models.
  • Tax and Financial Support: The government is offering incentives for landlords of smaller dwellings and corporate entities to increase participation in the rental market.
  • Public Rental Housing: The government plans to expand public rental housing supply, aiming to increase accessibility and stability for renters across different income brackets.

Key Information

• Hyundai Development Co (012630 KS, KRW50,800): Rated BUY with a target price of KRW67,000 (31.9% upside). The company is diversifying into commercial development, civil engineering, and asset management, aligning with the new market paradigm.

• SK D&D Co., Ltd (210980 KS, KRW43,800): Rated BUY with a target price of KRW63,000 (43.8% upside). It is a commercial property developer with potential to benefit from urban regeneration and increased rental demand.

• Emerson Pacific (025980 KS, KRW38,400): Rated BUY with a target price of KRW45,000 (17.2% upside). As a luxury resort developer, it is positioned to capitalize on the growing need for specialized real estate services.

Companies Overview

• Hyundai Development Co: A constructor-based developer with strong financial backing, transitioning into a diversified real estate entity.
• SK D&D: A commercial developer adopting Japanese business methods, showing strong potential in the evolving market.
• Emerson Pacific: A luxury resort developer with a focus on specialized and high-end properties, expected to benefit from market trends.

Market Trends

• Demand for Small Dwellings: The average household size is decreasing, leading to a rise in demand for smaller, more affordable homes.
• Rental Market Growth: Monthly rent is increasing as a share of the market, driven by lower interest rates, reduced jeonse popularity, and higher vacancy rates.
• Urban Regeneration: Aging infrastructure and buildings are creating a need for revitalization through renovation and improvement rather than full reconstruction.
• Corporate Landlords: The rise of corporate landlords is expected to transform the rental market, especially in apartment sectors, due to their ability to provide stable and long-term housing solutions.

Conclusion

The Korean real estate development market is undergoing a significant transformation, driven by structural changes, policy shifts, and evolving consumer behavior. Developers who can adapt to these trends, such as Hyundai Development Co, SK D&D, and Emerson Pacific, are well-positioned to benefit from the new normal, which emphasizes rental operations, urban regeneration, and diversified development strategies.