Written by Lee Kyung-min
According to market reports, investors in overseas real estate funds sold by five major domestic banks are expected to incur losses of more than 100 billion won ($77 million) in the first half of next year due to the sustained slowdown in the global real estate market. Watchers, Monday.
The total balance of funds sold by KB Kookmin, Shinhan, Hana, Woori, and Nonghyup was 753.1 billion won. Of this amount, 106.1 billion won will mature by June, followed by 151 billion won in the second half of the year.
This adds to concerns over recent mis-selling allegations involving commercial financiers and securities firms surrounding the irresponsible sale of equity-linked securities (ELS) linked to the performance of the Hang Seng China Enterprise Index (HSCEI). . The total losses of investors are expected to exceed 3 trillion won in the first half of next year.
If real estate prices fall below a certain level, the fund will not be able to earn a profit. Another disadvantage is that demand for real estate is not as strong due to the recent downturn in the global real estate market. Office vacancies have skyrocketed during the pandemic as many people have started working from home.
The initial promised return for the fund was between 6% and 7%. However, investors are unlikely to even get their principal back.
Market participants say that certain losses are unavoidable because products that cannot be rolled over for maturity extension or refinancing are sold at lower prices than the selling price.
An industry source said, “In the recent real estate market, there is not much value in buying, selling or leasing commercial buildings, mainly due to soaring interest rates.”
“We are closely monitoring the situation. There is only so much money flowing out that it would put the financial system at risk,” said a bank official.
According to the Financial Services Commission (FSC), domestic financial companies invested 55.8 trillion won in overseas real estate alternative investments.
FSC Vice Chair Kim So-young convened a meeting last week to call on domestic financial companies to step up monitoring of potential losses from overseas real estate funds.
“Overseas real estate investment exposure represents about 0.8% of the companies’ total capital,” he said at a meeting on December 1. “While this number is not yet cause for alarm, lenders and intermediaries are looking at the worst-case scenario. We need to be prepared.” 11.