Pandemic is negatively affecting overseas property fund: FSC

The market watchdog Financial Supervisory Service said Wednesday the novel coronavirus outbreak has been posing a negative impact to the country’s real estate funds that invest in overseas properties. 

A real estate fund is an investment vehicle designed to pool money from both individual and institutional investors to trade in properties. To profit, the funds usually either purchase commercial real estate for lease or provide loans to companies working on infrastructure and industrial projects in return for interest income. 

In the wake of the prolonged COVID-19 pandemic, some overseas real estate funds have been increasingly faced with investment risks because a growing number of virus-battered foreign tenants as well as the funded construction firms are delaying rent and interest repayment, respectively, to cope with the economic fallout, the FSC said. 

“If the economic recovery keeps stalling due to the prolonged COVID-19, the real estate funds’ profitability would continuously decrease, making their investors rush for the exit. Especially those products which finance companies’ building projects through loans will be more at credit risk as the funded companies usually carry multiple debts,” an official said. 

In response to mounting risks over the overseas property investment in the country, financial authorities will closely monitor whether related fund operators are complying with the risk management standard imposed by the Korea Financial Investment Association in July. It obligates local fund managers to conduct on-site inspection of overseas properties to prevent potential investment failures. In addition, all asset management firms operating the overseas real estate funds would be required to report their compliance with the regulatory scheme to their board of directors. 

Meanwhile, as of end-April, a total of 77 asset management companies are running overseas real estate funds, worth some 56 trillion won ($51.2 billion) in total, data showed.

Of that total, retail investors have invested 862 billion won, which accounted for 1.6 percent, while general corporations and financial entities put in some 13 trillion won and 41 trillion won, accounting for 24.3 percent and 74.1 percent, respectively.

By Choi Jae-hee (cjh@heraldcorp.com)