Punters can get into buildings through funds

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Punters can get into buildings through funds

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As the market expects the central bank to keep its monetary policy loose, asset management companies are offering investors real estate funds and concentrating on small investors.

Investors in buildings and other kinds of developments have traditionally been big investors including institutional investors. Today’s real estate funds are targeting smaller retail investors.

Igis Asset Management will be launching a mutual fund that will investing in Pacific Tower in Jung District in Seoul. The targeted investment is 185.5 billion won ($156.86 million) and the minimum amount an investor can make is 1 million won.

Rent revenues from Pacific Tower will be paid to investors as dividends. Igis estimates a 5 to 7 percent annual profit for investors.

The payments will be made in June and December. The fund will also be traded on the stock market.

Investors in office buildings were a kind of exclusive club in the past. The process of investing in office buildings was simple for private equity funds since they only needed to report their investments to the Financial Supervisory Service.

But now, as smaller investors are showing interest in investing in office buildings, the low interest rates continue, and financial companies have taken notice.

“Retail investors have been finding investing in office buildings attractive, as the annual return is higher than bank deposits [whose annual interest rates are around 1.5 percent],” said Cho Jae-young, head of the NH Investment and Securities’ Gangnam branch private banking center. “Unlike actually buying real estate, [a real estate fund] is an indirect investment that only requires small amounts of investment.”

A real estate fund that Hana Asset Management launched in July attracted so much interest that it was able to raise its 60 billion won investment target in just two hours.

The fund, which invested in the Tmark Grand Hotel in Myeong-dong, central Seoul, is expecting its annual dividend to be 5.5 percent.

According to FnGuide, a fund analyzing company, as of Tuesday, real estate funds have collected investments of 840.7 billion won. That’s nearly 400 billion won more, or 79 percent, larger than last year’s 470.8 billion won.

“In the last five years the average yield on office building investments [of 125 buildings whose gross floor area is 1,000 square meters, or 10764 square feet, or larger] was 6.5 percent, whereas stock investments only made 1.3 percent,” said Ryu Duck-hyun, an Igisi Asset Management director. “As investors who want higher returns on their investments continue to grow, such products will increase.”

However, not all investments in office buildings are winners.

According to the Korea Appraisal Board, the vacancy ratio in office buildings in Gwanghwamun in downtown Seoul as of September was 10 percent, which is higher than last year’s 5 percent.

“Real estate funds are mostly long-term investments, and some are closed-end funds in which investors can’t cancel their investment in a given period,” said Park Sang-eon, CEO of U&R Consulting, a real estate consulting firm. “Investors have to be cautious, as they might not receive the profits that they hoped for if the value of the property drops or if office vacancies increase.”


BY KIM SUNG-HEE [lee.hojeong@joongang.co.kr]

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