Following the release of the Q1 South Korea Alternative Investment Outlook, there has been consistent interest in Real Estate investments. In March 2019, a growing number of Korean institutional investors have favored longer term investment assets with consistent and stable return. As we review the April journal, we will take a deeper look into the latest real estate investments trends by local investors.
As shown in Figure 1.1, the total investment into real estate related funds by local AMCs has continued to rise on a yearly basis. The total investment grew 23.8% year on year from US$ 486.6MM at the end of 2017, to US$ 602.1MM in 2018. Overseas allocations also increased from US$ 340.9 MM to US$ 370.1MM during the same period. (KOFIA / Trading Economics)
Investment into overseas real estate deals from South Korea has been showing a consistent trend with annual growth of approximately US$ 9bn, starting from US$ 12.1bn in 2015 to US$ 38bn at the beginning of 2019 as shown in Figure 1.2 by KOFIA. With local institutions allocating more to overseas alternative investments, year on year growth is expected show a bigger jump in 2019.
According to Cushman & Wakefield, Korean capital in European real estate exceeded US$ 8.3bn in 2018. Additionally, the demand for European real estate has continued to outpace the demand for the US.
The interest rate differential between South Korea and Euro Zone has put a premium on EUR/KRW swap rate, currently at around 180bp for one-year. On the other hand, one-year USD/KRW swap rate is at a discount of around -150bp. On top of an attractive cap rate on European real estate assets, the swap premium is attracting Korean capital directly into European real estate deals. As South Korean investors continue to look for opportunities in Europe, the lack of supply in traditional European markets, such as Great Britain and Germany, have started to drive South Korean investors to Eastern and Northern Europe as additional regions for increased supply.
*USD/KRW FX Rate: KRW1117 (2018/12/31)