Japan 80% vs. Korea 15%... Why the Gap in Real Estate Management Outsourcing Has Widened [Kim Yongnam's Real Estate Asset Management]

Amid the downturn in the real estate market, concerns are deepening about how to efficiently manage and maintain the value of real estate assets held by individuals. In the past, it was natural for building owners to find tenants and manage facilities themselves, but the situation has changed. In the current market, which has been reorganized into a tenant-led market, it is difficult to even maintain existing contracts with tenants, let alone resolve vacancies, with this method alone.

Especially when faced with unexpected crises such as a surge in overdue payments, an increase in vacancies, frequent tenant disputes, and management gaps due to sudden inheritance, building owners face even more serious difficulties. In these urgent situations, the increasing number of cases of receiving help from professional asset management companies can be said to be a natural trend.

Nevertheless, many building owners are still hesitant to entrust professional management due to misunderstandings or prejudices about real estate asset management. A recent case of a self-employed person in his 60s who owns a commercial building in Jongno-gu illustrates this atmosphere well. He had been suffering from vacancies and tenant disputes for several years, and although he received asset management counseling through an acquaintance, he confessed during the counseling process, “I am worried that the fee will be high and that it will not be managed properly.” This is an example of how the opaque operating methods of some non-professional companies in the past have led to a negative perception to this day.

A 40-year-old office worker who inherited a multi-family house in Gangnam had great difficulty managing the building in conjunction with his busy work life. He hesitated to entrust professional management, following the advice of those around him who said, “If you leave it to someone else and a problem arises, the responsibility will be unclear and you will end up suffering losses.” This can be said to be a misunderstanding arising from a lack of clear understanding of the professional management system and scope of responsibility.

As such, the domestic real estate asset management market is faced with the tasks of ‘building trust’ and ‘spreading positive perception.’ Many building owners often inquire about professional asset management services only when they are in a pressing situation or recommended by those around them, rather than strategically exploring them. Rather than an active approach to maximizing real estate value in the long term through professional management, a passive choice to escape the immediate crisis is still the mainstream.

As such, most small and medium-sized building owners in Korea prefer to manage directly, and the consignment management rate is still low at about 15%. On the other hand, Japan maintains a high consignment management rate of about 80%.

These national differences stem from differences in the structure of the real estate rental market, cultural characteristics, legal and institutional environments, and perceptions of the utility of management costs. In Japan, consignment management became common early on amid a systematic legal system and high social trust, and the need for efficient asset management was also recognized early on. In the last 5 to 10 years, the utilization rate of consignment management has increased in both countries, but the reality is that Japan is ahead of Korea in both absolute numbers and growth speed.

As the downturn in the real estate market deepens, the importance of real estate management is bound to be further emphasized. In addition to indirect investment products such as REITs and real estate funds, small and medium-sized buildings owned by individuals must also protect their asset value through transparent and systematic lease management, thorough risk management, and stable cash flow.

In particular, in unexpected crisis situations such as a surge in overdue payments, prolonged vacancies, constant tenant disputes, and management gaps due to inheritance, the need for professional asset management becomes even more desperate. In the future, if a transparent fee system is established and trust in professionalism is built in Korea, the consignment management rate is expected to gradually increase. If the day comes when professional asset management becomes commonplace like in Japan, the domestic real estate market will be able to develop in a more stable and efficient manner.

<Korea Economic The Moneyist> Kim Yongnam, CEO and President of GlobalPMC Co., Ltd.