Korean investors flock to offshore real estate funds

2019.08.12 12:01:48 | 2019.08.12 12:02:16

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Funds designed to invest in overseas properties have grown popular in South Korea as retail investors have recently joined institutional investors in hunting for high returns amid a prolonged low interest rate environment and slump in local stock markets.

According to Seoul-based market tracker FnGuide, assets in funds investing in offshore real estate reached 3.07 trillion won ($2.5 billion) as of Sunday, exceeding the 3 trillion won mark for the first time with a net flow of 287.8 billion won over the past month alone. A net inflow to the funds on a yearly basis is also expected to reach a record high this year with the figure coming to 896.6 billion won as of August, already surpassing 615.8 billion won in 2017 and 393 billion won in 2018.

Korean investors are increasingly turning to overseas real estate funds due to the lack of profitable investment options at home in a protracted low interest rate environment and due to poor local stock markets’ performance, according to market experts. The average return rate of 41 funds investing in offshore properties stood at 6.78 percent since the beginning of the year. The funds yielded 19.44 percent of return for three years and 26.88 percent for five years.

However, compared with the first trading day of this year, the country’s main stock index Kospi lost 3.72 percent as of Friday.

Funds investing in properties in Eastern Europe are especially popular because many real estate markets in the region are still undervalued, a fund expert said, adding that investors are increasing their bet on properties in countries that are in the Eurozone and showing sound economic growth such as Poland.

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In addition, investment targets have become more diverse, going beyond offices and hotels to logistics centers. A fund investing in Amazon’s distribution centers in major European nations that was launched by IGIS Asset Management last month met its goal to raise 230 billion won in just a week.

On the other hand, Korean investors are shunning Japanese properties following Japan’s retaliatory export curbs. Real estate investment trusts (REITs) for Japanese assets have seen a net outflow of 700 million won over the past week.

Offshore real estate investments exclusive to institutional investors have become available for retail investors since September 2016 when a fund investing in four office buildings in Dallas, the U.S., was launched by Mirae Asset. After that, many asset managers began to establish overseas property funds for retail investors. Since 2018, properties in European nations have been emerging as one of the most attractive investments.

By Park Ui-Myung and Choi Mira

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