Korean investors building up property holdings in Asia, including Singapore
SOUTH Korean investors are keen on a larger slice of their Asian neighbours' real estate pie - and some of them have their eye on Singapore.
Korean investment in Asian real estate may currently be worth more than US$10 billion, estimates Derek Wong, director of real estate investment & finance at Woori, Korea's largest financial group. This sum, he believes, has the potential to increase by 52-100 per cent over the next 3-5 years.
Forced to take rain checks for over a decade by not one but two financial crises, Korean investors can finally seek overseas investment opportunities under clear skies. And they are doing so with a vengeance.
'With Korean National Pension Service (NPS) acquiring more than US$3 billion worth of overseas real estate in the last six months, we expect other Korean pension, insurance and investment funds to follow suit,' says Mr Wong.
NPS plans to have 6.6 per cent of assets in overseas equities in 2011, compared with 5.1 per cent targeted for this year, and is considering establishing a fund that will focus on investments in Asia.
Besides the pension funds, Mr Wong names conglomerates with a lot of liquidity - such as Samsung, Daewoo and Hyundai - as well as insurance companies such as Samsung Insurance and Woori Aviva as other investors with pent-up interest and strong balance sheets.
'Since the 1997 Asian financial crisis, when Korean conglomerates were badly hit, Korean corporates had to strengthen their corporate balance sheets and were discouraged by the Korean government from making any significant overseas investments,' says Mr Wong.
As an indicator of how pent-up Korean interest can surge, he highlights how Korean investment in overseas real estate leapt from less than US$10 million in 2003 to US$750 million in 2006. It was about US$1.2 billion in 2008 before the global crisis halted all overseas investments again.
While China and Hong Kong are natural favourites for Korean investment, Singapore wins points for the transparency of its market - as well as for its political stability, strong legal system and clear tax structure without capital gains tax.
Korea was already making its presence felt in Singapore's residential market before the crisis set in; in 2007, Koreans accounted for 7 per cent of all foreign buyers and were ranked joint fifth among foreign buyers in Singapore.
Post-crisis, Korean investment is not a one-way street. The sharp depreciation of the Korean won during the crisis attracted an influx of overseas funds, especially from the United States.
Despite the strengthening of the won, the success of these early-bird investors has garnered Korean real estate a steady stream of attention. Woori is currently stitching together about US$2-3 billion worth of deals in Seoul, as well as facilitating the investment of Malaysian conglomerate Berjaya in an integrated resort on Jeju Island.
Mr Wong estimates that a standing asset in Korea can fetch a yield of about 6 per cent per annum, compared to a much lower 4 per cent in Singapore.
Choice picks of Korean real estate include office buildings and retail malls, he adds. 'These depend a lot on the economy of the country, and the Korean economy looks to be good for the next 10 years.'
The Korean government predicted last month that Korea's economy would grow 5.8 per cent this year.
Of course, many investors remain leery of Korea due to the language barrier and the political tension between the North and the South, as well as a widespread perception of the Korean market as being insular and 'closed off'.
'It's a misconception,' says Mr Wong, who feels that the country is making an effort to reach out to the world, especially through its entertainment scene.
'Now is a good time to break the Korean mystique,' he concludes. 'A lot of people say we're going through 'the golden decade of Korea'.'
Korean overseas investment leapt from less than US$10m in 2003 to US$1.2 billion in 2008.
Source: Business Times, 6 Jul 2010