DarcMatter - South Korea

Increasing South Korean Investment in Overseas Real Estate

The amount of the Korean investment in foreign real estate in the first half of 2019 has reached about US$ 6.6 Bn, hitting the highest it has ever been in the half-year period history, due to the aggressive purchases of the Korean securities and asset management firms.

According to the Korea Financial Investment Association, the amount of overseas real estate funds and investment discretionary contracts including both public and private funds that were settled by the end of June 2019 were about US$ 6.58 Bn. If these trends continue, the amount invested in the foreign real estate funds at the end of 2019 will exceed US$ 8.65 Bn.

Nevertheless, this result has not been surprising as the size of overseas real estate funds has continued to increase in recent years, as seen in Figure 1.1.

Figure 1.1 Overseas Real Estate Investment by Korean Investors

The cumulative investment, inclusive of the first half of 2019 totaled over 40.17 US$ Bn. However, this amount refers directly to overseas real estate investment that was settled in Korea as a fund.  Therefore, it is estimated that the actual investment amount may be larger considering foreign direct investments and offshore funds.

We believe, one of the primary reasons for this growth in overseas real estate investments, is due to the lack of access to low-interest rate real estate products both domestically and internationally.  As a result, the desire for these types of products has extended beyond traditional institutional investors to individuals, further opening the market.  Additionally, domestic securities firms have been aggressively investing in real estate in order to strengthen their investment banking division and have been acknowledged by local sellers based on the display of positive capital strength.

In terms of regionality, West Europe has received investment interest, given the relatively higher rate of return versus the United States.  Western Europe’s appeal reflects the Euro affording loans at 1% interest rate and offering foreign exchange swap premium of more than 1.5%. According to South China Morning Post, Korean investors have begun to outpace Chinese investment dollars in Europe, primarily driven by the Chinese government continuing to limit overseas real estate investment since 2016.

As a result, this has provided increased opportunities for prime building investments, to investors from regions such as Korea according to the Financial Times.


Source: https://www.sedaily.com/NewsView/1VLM5I6C3B

US$ 1 = KRW 1155.52 (06/30/2019)