By Lee Hyo-sik
Staff Reporter
Japanese investors are riding high on the strong yen to acquire office buildings and other commercial properties in Korea these days.
Compared to the sluggish residential sector, office buildings and other commercial real estate markets remained relatively resilient on lack of supply over the past two years. But prices have begun falling in recent months, as worsening economic conditions here forced many businesses to close down or downsize, slashing demand for office space.
Additionally, American and other foreign owners of office buildings are now trying to dispose of their holdings here to secure cash in the wake of the deteriorating global credit crunch.
John Walker, chairman of Macquarie Group Korea, told The Korea Times that a number of Japanese investors are inquiring about purchasing office buildings and other commercial assets here that can generate a stable cash stream.
``Japanese investors, particularly institutional ones who are interested in securing a steady income flow, are asking us about Korea's commercial real estate market. I think that with the strengthened yen, the Japanese are more serious than ever before about snatching up undervalued properties here,'' Walker said.
The won has weakened nearly 46 percent against the yen this year, making real estate property more attractive. The local currency has lost ground against the dollar and the yen as international investors are flocking to safety assets against the increasingly uncertain business outlook, pulling money out of Korea and other emerging markets.
The chairman said the nation's office building sector has remained relatively strong, in contrast to the residential sector, because of a low vacancy rate on limited supply.
Walker said, however, that their value has started falling amid the sluggish business conditions, adding foreign owners are rushing to unload commercial buildings to generate cash to cope with the ongoing credit squeeze.
``The trend presents a great buying opportunity for Japanese investors. They think that if they purchase office buildings, they can get a stable inflow of cash and realize huge capital gains when economic conditions improve in a year or two,'' he noted.
Foreigners have recently been trying to dispose of commercial buildings and other properties here as a last resort. But they are facing difficulty in doing so as nobody is interested in buying them because of the slumping domestic real estate market.
Among others, GE Capital and GE Real Estate recently put their commercial buildings on sale to increase cash holdings, as they are grappling with a worsening cash flow problem.
Additionally, Merrill Lynch, which was sold to Bank of America, is reportedly trying to sell the SK Group headquarters building in central Seoul back to the conglomerate as the U.S. investment bank seeks to improve its cash flow.
Since the 1997-98 Asian financial crisis, foreign investment banks and funds have purchased a number of commercial buildings in Seoul at cheaper prices. Many have realized huge capital gains on property investments here as the real estate market boomed afterward. Now, they are trying to unload their holdings to increase cash holdings in the wake of the global credit crunch.
Walker said Japanese investors think that they can benefit enormously from repeating history.
Japanese Hunting Expands to Manufacturing Sector
Japanese companies are also moving to take over cash-strapped Korean manufacturers, including petrochemical firms, in efforts to find new growth engines outside the world's second largest economy, which recently fell into a recession.
An investment banker at another multinational financial group told The Korea Times that not only Japanese institutional investors, but also trading companies and manufacturers, are looking to acquire distressed businesses here in the wake of the bearish stock market and the falling won.
``With the strong yen and the slumping stock market here, many Japanese businesses think that now is the perfect time to come and go on bargain hunting for ailing Korean businesses. They want to acquire Korean rivals in the same sector because they have the expertise and want to minimize risk,'' he said.
Japanese companies have been trying to expand outward, as the world's second largest economy has remained stagnant over the past two decades. Last week, the Japanese government announced that the economy has officially fallen into recession on rapidly falling exports and sluggish domestic consumption, following Germany, Italy and Ireland.
The Japanese economy contracted 0.1 percent in the third quarter from the previous quarter. The last time Japan was in recession ― usually defined as two or more consecutive quarters of economic contraction ― was in 2001 after the Internet bubble burst.
With deteriorating business conditions at home, Japanese firms are increasingly eyeing their counterparts in Korea, which have been grappling with a liquidity shortage and falling share prices.