By Yoon Ja-young
Some stock investors expect investment funds to flow from real estate to the bourse after the government’s announcement of tough regulations to stabilize housing prices. But experts are divided on this.
Analysts agree that the huge amount of floating money had been pulling up the value of houses and stocks. The country’s short-term floating funds stood at 1,025 trillion won as of May, up 14 trillion won from the end of last year.
The government’s real estate stabilization measures announced Wednesday, however, seem to be cooling investor sentiment. They may look for alternative investments due to the historically low interest rate.
Kiwoom Securities analyst Hong Chun-uk said there is a chance the money might flow to the stock market.
“During the past two decades, investment in stocks increased more when the real estate market showed signs of stabilizing rather than overheating,” he said, citing the equity fund investment boom in 2000 and wrap account boom in 2010 and 2011 as examples. The real estate market was relatively stable at the time, he said.
However, he stressed that stocks also fall when the real estate market collapses.
“Stocks can’t rise alone when the real estate market is miserable,” he said. “This is because it means the whole economy is in bad shape.
“If the government’s Aug. 2 real estate measures succeed, the real estate market will stabilize, and money will enter the bourse in such circumstances.”
But some analysts say that stocks and real estate are not alternatives for each other.
“Past experience shows that the funds enter the stock market when both real estate and stocks are bullish,” said Lee Jae-mahn, a strategist at Hana Financial Investment. “This is because investor sentiment is the most important factor for the flow of funds.”
He expected real estate investors to hold on to cash instead of entering the bourse. “If corporate performance continues to be good, the money will enter the stock market,” he said. “However, that is because of the positive stock market, not real estate regulations.”
Jeong Yong-taek, an economist at IBK Investment and Securities, said that the government’s real estate policy package includes not only restrictions but also exemptions and support for low-income earners who need to buy a house.
“The economic direction determined by external changes is more closely related with the financial market’s move (than real estate policies),” he said.
The economist also pointed out that the previous administration focused too much on stimulating real estate to pull up short-term growth.
“Compared with the explosive growth of household debt, the funding for facility investment contracted,” he said. “The Aug. 2 real estate policy is meaningful since it will correct the wrong signals of the previous administration.”
Some experts expect real estate investors to turn to offshore property markets instead of betting on stocks.
“Those who prefer real estate investment think stocks are too risky while real estate investment guarantees a stable profit,” a Seoul realtor said. “I don’t think they will turn to stocks because of the regulation.”
The main KOSPI index closed at 2,395.45 on Friday, up 0.36 percent from the previous day, following a 1.68 percent drop Thursday.