Korea Exchange recommends investing in REITs

The Korea Exchange (KRX) building in Seoul / Courtesy of the KRX

By Park Jae-hyuk

Investing in real estate investment trusts (REITs) has emerged as a good alternative for domestic investors, amid the continued horizontal price movement in the local stock market, according to the Korea Exchange (KRX), Monday.

SK REIT, for example, drew attention from investors at the time of its listing on the benchmark KOSPI market in September. The attention was mainly attributed to a growing number of investors focusing on REITs or investing in them after witnessing the lackluster performance of the stock market.

“Korea's listed REITs market has continued to draw attention from investors,” a KRX official said. “We hope the listed REITs market, which is continuing to grow quantitatively and qualitatively, becomes a new alternative for investors confused with the flat stock market and those seeking stable dividend incomes.”

REITs refer to companies that raise funds from investors, make investments in real estate or real estate-linked securities and distribute their earnings to the investors. After the world's first REIT was founded in the U.S. in the 1960s, the trend of establishing REITs spread to Europe and Asia during the 2000s.

In the wake of the Asian financial crisis in 1997, Korea started allowing REITs in April 2001 for the purpose of restructuring businesses through the liquidation of their real estate holdings they owned.

Data compiled by the KRX shows there are 299 REITs in Korea as of June and the size of their combined assets under management (AUM) stands at 68.4 trillion won ($58 billion). More than half of them were invested in housing.

According to the bourse operator, 15 of them are listed on the stock market. Their combined market cap is around 6.3 trillion won.

“The number of REITs and their AUM have continued to grow, as they have been regarded by investors as medium-risk assets offering medium returns,” the KRX official said. “Due to the eased regulations on the listing of REITs in 2018, the number of listed REITs and their market caps have increased. They have also tended to diversify the types of real estate they invest in.”

The KRX, however, added that the size of Korea's listed REITs market is just equivalent to 0.24 percent of the country's GDP, and their combined market cap accounts for only 0.18 percent of the domestic stock market. The size of Singapore's listed REITs market, on the other hand, is equivalent to 23.7 percent of the country's GDP, according to the KRX.