The FTA will improve trade flows, foster intercultural and political cooperation between the two countries and bring positive economic benefits. However, given China’s price advantage and size dominance in multiple sectors, the FTA may pose some challenges for South Korean companies operating in areas such as agriculture and manufacturing.
FTA will boost South Korean exports
China is South Korea’s biggest export market and the FTA is expected to result in further export growth. However, the tariff reduction will only be phased in gradually. In the initial stage, tariffs will be eliminated on exports that were worth around US$8.7 billion in 2014, equivalent to just 6.0% of South Korea’s total exports to China. In ten years’ time, tariffs will be lifted on exports worth another US$45.8 billion. Tariffs on the remaining items will be lifted after 20 years.
What does it mean for real estate?
The FTA is focused on eliminating trade tariffs. However, given that China is South Korea’s biggest trading partner, the FTA will also have a number of positive impacts on the South Korean real estate market, including:
1. Increased demand for modern logistic space from South Korean companies exporting to China as well as from Chinese exporters setting up operations in South Korea.
2. On the back of increased trade flows, demand for office space is expected to increase from both South Korean and Chinese companies. This will include Chinese firms looking to open branch offices in Seoul.
3. Stronger demand for land from Chinese developers. Several Chinese developers have recently purchased land on Jeju Island. This activity is set to spread to other areas, including Incheon and Songdo.
4. Increased numbers of Chinese tourists. This will result in stronger demand for hotels and further growth in retail rents.
Justin Kim, Head of Research and Consulting, Korea, commented:
“The FTA will create more investment opportunities for Chinese citizens to own land in South Korea in locations other than the already popular Jeju Island. Areas such as Incheon and Songdo, where a number of new hotels and resorts are being developed to attract Chinese tourists, are expected to see stronger investment activity. Seoul is also likely to see an increase in investment from Chinese buyers looking for commercial assets in core shopping districts. In addition, the demand for modern logistic space from South Korean companies exporting to China as well as from Chinese exporters setting up operations in South Korea is expected to increase.”
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