Real Estate Trusts Popular Despite Warnings of Pitfalls

As interest rates remain in the mid-single digits, investors are flocking to real estate fund products, and financial firms are expected to issue up to 185 billion won ($143 million) in new funds in April, all backed by real estate properties.

But industry officials warned that, despite the higher return offered by the funds, investors should carefully weigh the risk and viability of the underlying real estate projects. Hanvit Bank is offering a fund which will invest in the large-scale development of a commercial and residential complex in south-eastern Seoul. While it is expected to provide a return close to 10 percent, it carries a longer term of 26 months.

Kookmin Bank said it will market a 30 billion won fund which will be invested in the development of apartment complexes in and around Seoul.

Hana Bank will put out a fund to be invested in the redevelopment of apartment complex in Seoul for 35 billion won. The bank said the expected return on the fund will be 2 percent higher than the bank's savings rate.

Kookmin's head of real estate investment trusts, Han Kyung-su, said, "The REITs have been very popular lately, but investors should remember that the funds are not insured by the Korea Deposit Insurance Corporation." The management record of the developing and construction companies and the marketing prospects of the proposed property should be evalauted carefully, he said.

by Cheong Chul-gun