Real estate mutual fund booms in Korea despite icy housing market

2022.11.21 12:12:03 | 2023.05.03 13:50:03

Real Estate in Seoul City이미지 확대

Real Estate in Seoul City

Real estate mutual funds in South Korea are swamped with investors seeking steady income without high risks although the country’s housing market has slumped in a high interest rate environment.

The total asset base of real estate mutual funds in October hit a record high of 139.3 trillion won ($103.2 billion), according to recent data released by the Korea Financial Investment Association. The figure crossed the 100 trillion won-mark in 2020 and since then has grown fast on low interest rates during the Covid-19 crisis to reach 124 trillion won in December 2021.

Real estate mutual fund is an investment product that purchases real estate properties or related investment products such as stocks, loans, and REITs (real estate investment trust) with money pooled from investors to share returns with investors.

The sharp growth has been led by private equity funds. Nearly all, or 98 percent, of the total investors’ money collected for real estate mutual funds came through the private equity fund sector.

More asset management and securities firms began to sell real estate mutual funds to investors with opportunities to generate steady income in the low interest rate environment, said an asset manager.

Real estate mutual funds have delivered not only steady income but high returns to investors. Hana UBS Class One Special Asset Investment Trust 3 Class C1 with a total asset base of more than 100 billion won boasts a rate of 141.18 percent return for a 12-month period and 68 percent for a six-month period.

Investment experts, however, warn that returns from real estate mutual fund investments would grow smaller if the economic downturn prolongs. A public real estate fund recorded a return rate of 15.8 percent for two years but minus 3.7 percent for a six-month period.

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