Korean real estate trust industry’s net profit falls in H1 for first time in 9 yrs

2019.09.10 14:26:13 | 2019.09.10 14:27:36

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South Korea’s real estate trust companies saw their combined net profit plunge 7.7 percent in the first half of this year from a year ago, marking the first fall in 9 years to reflect the subdued market due to heightened property taxes and poor economy, data showed Tuesday.

According to data released by the Financial Supervisory Service, Korea’s 11 real estate trust companies raised a combined 263.3 billion won ($221 million) in net profit in the first six months of this year, down 7.7 percent from the same period a year ago. It is the first time for their bottom line fall in 9 years since 2010.

Real estate trust firms’ first half and full year net profits since then had shown growth every year.

Data, meanwhile, showed that all 11 companies were in the black in the January-June period, with average net income of 23.9 billion won.

Operating revenue jumped 7.6 percent on year to 633.9 billion won in the first half of this year, mainly led by a 49.7 percent increase in revenue from managed land trust fees (125.6 billion won) despite a 12.7 percent fall in borrowed land trust fees (192.6 billion won) that account for the largest in operating revenue.

Borrowed land trust business involves real estate trust firms pouring capital from their own accounts should there be a shortage in project fees when carrying out property development projects due to housing payments and financing.

Data showed that real estate trust companies’ operating costs also increased 34.4 percent on-year to 286.2 billion won in the January-June period. The surge was mainly led by a 19.1 percent jump in sales maintenance costs (183.7 billion won). As of end of June, real estate trust firms managed 2,022 employees, up 10.4 percent from a year ago.

Real estate firms’ combined operating profit fell 7.5 percent to 347.7 billion won in the first six months of this year, data showed. Their total assets reached 5.3 trillion won as of end of June, up 13 percent from a year ago, and total debt and equity capital 2.47 trillion won and 2.85 trillion won, up 21.7 percent and 6.3 percent, respectively.

Firms’ average net capital ratio stood at 735 percent as of end of June, down 121 percentage points from the end of December, last year, data showed. Their asset under management totaled 219.7 trillion won as of end of June, up 6.2 percent from last year. Collateral trust that account for the largest of assets jumped 7.7 percent to 134.6 trillion won and managed land trust 5 percent to 59.3 trillion won.

Leveraged real estate trust asset under management, however, fell 1.2 percent to 8.3 trillion won during the same period, the first plunge since 2009.

The FSS said that it will enhance monitoring of firms’ financial soundness given declining trend of their borrowed real estate trust assets under management and falling net capital ratio.

By Jin Young-tae and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]