Wealthy Koreans losing appetite for real estate

By Lee Kyung-min

The proportion of real estate in investment portfolios of wealthy Koreans fell in 2019, breaking the uptrend for the first time in six years, a private report showed Thursday.

This came as a growing number of people with multiple homes sold what are fast becoming unattractive assets as a result of heavier taxes and regulations amid the economic slowdown.

According to a report titled Korean Wealth Report published by Hana Institute of Finance affiliated with Hana Financial Group, real estate accounted for 50.9 percent of the investment portfolio of the rich in 2019, down 2.2 percentage points from the year before.

The report was based on a survey of 393 private banking clients with financial assets worth over 1 billion won ($812,000) of the group's flagship Hana Bank between Dec. 1 and 31 in 2019.

The figure bottomed out at 44 percent in 2013 and has since been steadily increasing to 53 percent in 2018. It was 47 percent in 2014; 50 percent in 2016; 51 percent in 2017 and 53 percent in 2018.

The collective rebalancing move came amid their shared concern on the bleaker market outlook in the next five years.

When asked about how the real economy would fare in the next five years, over half, or 54.7 percent said the outlook would be negative in 2019, while only 8.7 percent said it would be positive.

The answer was similar in 2018, with 55.6 percent maintaining negative and 10.1 percent positive.

The sentiment in the past two years was a drastic shift from 2017, when about one third, or 33 percent said the outlook would be positive while only 27 percent responded negatively.

The most notable change was reduced appetite for high-risk yet volatile financial products such as equity-linked securities (ELS) and equity-linked funds (ELF).

The risk-averse sentiment in turn led to a corresponding spike in interest in relatively low-yield yet safer bank savings as well as foreign currency-denominated funds, mostly held in U.S. dollars or Japan's yen among other safe-haven currencies.

The reluctance to invest in derivatives stems in considerable part from a series of fiascos involving derivative-linked funds (DLFs) sold by Woori and Hana Bank.

“The heightened risk of derivative products led to a considerable drop in returns last year, and investors understandably shunned related products thereafter,” the report said.

They had at least 1 billion won ($810,000) in financial assets and earned an average of 479 million in annual income. Their assets averaged a value of 16 billion won.