Korean investors shy away from European commercial properties

Once the fastest emerging source of foreign capital into European real estate asset investments, South Korea‘s investors were seen redirecting their attention to the Americas in 2020, data showed Monday.

According to data from US-based property market tracker Real Capital Analytics, Korea’s capital going directly into assets in Europe, the Middle East and Africa, each valued at $10 million or greater, fell by 78 percent on-year to $3 billion in 2020.

Koreans in 2019 were the fastest-emerging source of capital into European assets, rising over 120 percent on-year to 11 billion euros ($13 billion).

The decline was sharper, provided that the global cross-border investment into the region slipped 26 percent in 2020. As a result, Korean investors were responsible for only 2 percent of the total cross-border property investment across Europe, the Middle East and Africa, down 6 percentage points on-year.

This contrasted from the nation’s rising capital exports to North and South America to $5 billion, up twofold from a year prior.

The proposed price gap between buyers and sellers in Europe has remained stubborn, while the foreign exchange hedging premium that Koreans had benefited from in investment in Europe is no longer attractive to Koreans, said Jayme Han, senior director of capital markets at JLL Korea.

“Koreans appear to shy away from investing in European properties overall, out of the belief that European assets may depreciate further,” Han said.

In the meantime, investors’ flight to safety in the wake of the COVID-19 pandemic has prompted competition in bidding for assets carrying low risks, especially in Europe.

“The core asset pricing has peaked in Europe,” said Yoon Jae-won, team head of outbound investment at Savills Korea. “On the other hand, US market was brimming with undervalued investment opportunities in second-tier cities.”

The RCA data also showed that the COVID-19 pandemic has taken a toll on cross-border investment, as travel restrictions in place hampered on-site due diligence of assets.

The total outbound real estate investment of Korean capital dropped 53.4 percent to $8.6 billion in 2020. On the other hand, domestic investment by Korean investors accounted for 87 percent of the total capital, up 4 percentage points on-year. The RCA data collects the transactions of commercial real estate assets, including apartments, hotels, industrials, offices, retail and seniors housing and care properties.

By Son Ji-hyoung (consnow@heraldcorp.com)