Foreigners Fishing in Depressed Korean Assets for Bargains
By Jane Han
Staff Reporter
When U.S. buyout firm Lone Star purchased the landmark 45-story Star Tower in Seoul for 700 billion won in 2001 and sold it three years later at a profit of 280 billion won, it taught investors both here and abroad how rewarding the Korean office market could be.
Naturally, other foreign investors such as the Carlyle Group and Singapore Investment Corp. jumped on the bandwagon to take home strong returns as well, while Korean investors, at the time, weren't as proactive in the office market compared to their overseas peers.
As investment opportunities are cyclical, however, experts say that another lucrative buying opportunity is ahead with the domestic office market getting ready to pick up again after a few months of a bearish run.
The recovery is set to be pretty significant over the long haul, said Kim Tae-ho, a senior analyst at R2Korea, a Seoul-based commercial real estate consultancy, but adds that he's doubtful whether local investors will capitalize on the rare chance this time.
``Timing is everything, but Korean investors, notably the National Pension Fund, often seems to be a step behind,'' he said, referring to the fund's recent purchase of Samhwa building in southern Seoul at a price of 250 billion won.
Since the transaction, the building has lost about 20 percent of its value, dragged down by the overall economic slowdown. Samhwa is just one of several properties that NPS bought last year, when the Seoul office market peaked with record high values.
``With every investment, it's never good to buy when prices are peaking,'' said Lee Jong-woo, an analyst at JUSTR, another commercial property consultancy, who stressed, however, that past mistakes shouldn't hold back investors from moving quickly.
The NPS, which managed 229 trillion won last year, incurred an estimated loss of 1.75 trillion won, or 0.75 percent of its entire assets, through various investment vehicles.
He explained that a fresh wave of foreign investors is keenly eyeing the local office market for a good purchase time.
According to ShinYoung Asset, values of commercial buildings in Seoul shed 25 to 30 percent since their highest points in middle of last year, which is prompting buyers to jump in the game again.
Experts say that if prices bottom out in the second half of this year, investors will immediately seal transactions that they've been working on.
Many of them are converting their money into the Korean won now to take advantage of the weak local currency, according to industry sources.
``A lot of preparation is already going on,'' said Lee, who added that domestic clients often don't reap strong returns because they wait and see how other investors perform before getting in.
Mark Vink, a senior analyst at Savills Korea, said foreigners feel confident about the Seoul office market because compared to Singapore and Hong Kong, where rents fell sharply, figures here are still on the rise.
``Indeed a lot more potential investors from the U.S and Europe are getting active,'' he said, forecasting, however, that there won't be strong recovery anytime soon.
Aside from institutional investors, individual buyers are also flocking to the Korean market, the latest Bank of Korea data hints.
The central bank said Monday that expatriates remitted a record $1.45 billion into the country from January to November last year, which is more than 5.5 times higher than the amount wired in the year before.