Boom in overseas property investment spurs growth in real estate funds

The recent boom in overseas property investment has spurred the growth of local real estate funds, industry sources said Sunday.

Fund managers here said that interest has been on the rise to acquire overseas property amid the generally lackluster performance of the South Korean bourse and real estate market.

Market data showed that the size of locally operated overseas property funds has surged 650 percent vis-a-vis five years earlier.

The Korea Financial Investment Association said as of late February, the country had some 300 property funds dedicated to acquiring foreign real estate, with the total size hitting 22 trillion won ($19.4 billion). In 2012 the country had some 65 related funds, with the total size of funds being much smaller.

"Although the stock market has performed better more recently, only those holding blue chip shares have benefited, while an excessive supply of new houses has made the domestic real estate market less attractive overall for investors," a market watcher said. He added that low interest rates have caused many investors to look to foreign real estate as an attractive option.

Reflecting such developments South Korea's leading brokerage Mirae Asset Daewoo has moved to acquire the landmark head office of Vodafone in Dusseldorf, Germany, that could be worth some 350 billion won. 

Kiwoom Asset Management Co., another local player, had poured nearly 1.2 trillion won into foreign property ventures in the past year that includes some 640 billion won invested into the 200 Liberty Street office in New York with NH Financial Group.

Besides such companies, Korea Investment and Securities Co. and NH Investment and Securities were active in acquiring foreign properties.

Sources said that these companies not only operated real estate funds but set up project financing arrangements to help them make inroads abroad.

The country's finance ministry said in its annual and fourth quarter overseas direct investment report that the transfer of money for the purpose of buying property or engaging in the rent-related business exceeded $6 billion in 2016, up 29.2 percent from the year before.   

In addition to institutional and big players, private investors have invested in various real estate funds operated by companies like Mirae Asset, Hana Asset Management and Samsung Securities to buy up property abroad.

In regards to the latest trends, analysts have said that like all investments, people need to take into account the apparent risks involved, and that the likelihood of interest rate hikes needs to be factored in.

On associated risks, the Financial Supervisory Service said it plans to keep close tabs on money going into real estate-related funds, especially since the moves by the United States to mark up interest rates can result in the slowing down of growth that can affect property markets. (Yonhap)