The recent global downturn in the real estate market has exposed significant risks of substantial losses for overseas real estate funds sold by domestic banks.
According to financial sources on Dec. 18, the aggregated sales balance of overseas real estate funds by the top five banks in South Korea -- Kookmin, Shinhan, Hana, Woori, and Nonghyup -- amounts to 742.7 billion won (US$570 million). Among these, it was revealed that the amounts maturing in the first and second halves of next year are 106.1 billion won and 151 billion won, respectively.
Banks are expressing concerns over potential losses from the funds. The increase in remote work after the COVID-19 pandemic has led to a rise in vacancies in commercial real estate, and the reduced demand for real estate investment due to high interest rates has diminished the value of these assets. A spokesperson from a commercial bank expressed concerns, stating, “Funds that targeted returns in the range of 6 to 7 percent at the time of investment could potentially record negative yields.”
Considering the funds sold through other channels, such as securities firms, there is a possibility that losses could increase further. According to the Korea Financial Investment Association, the total set-up amount of overseas real estate funds by domestic financial companies amounted to 76.97 trillion won as of Dec. 14, representing an increase of 5.46 trillion won compared to a year ago when it was 71.51 trillion won.