Wealthy shifting from real estate to financial assets

A customer looks at books on stock investment at a book store in central Seoul on Jan. 19. Stock investment interest has risen thanks to the bullish market. [YONHAP]

Korea’s wealthiest are expected to increase investments in financial products and move away from real estate, which until now has been their main profit-generating investments.

According to Hana Institute of Finance’s 2021 Korea Wealth Report released on Monday, the wealthiest have been shifting from real estate investments to financial investments since last year.

However, real estate still represents a large portion of their wealth.

The wealthy in the study were defined as those whose total financial assets exceed 1 billion won ($886,000). It also included the mass affluent at the lower end of the wealth spectrum and defined as those whose financial assets are between 100 million won and 1 billion won.

Some 700 of the wealthiest and 1,400 of the mass affluent participated in the survey for the report.

The report noted that thanks to the increase in liquidity due to government fiscal and monetary policies countering the economic impact of Covid-19 as well as the bullish stock market, investments in the financial markets have increased.

Cash and deposit holdings accounted for 46 percent, taking up the largest portion of the wealthy’s financial investment portfolio. This is an increase from 41 percent in 2019. The report noted that increase in cash or deposits was largely the result of stocking up against growing uncertainty triggered by the coronavirus pandemic.

Stocks trailed at 19.5 percent, up from 16 percent the previous year. Other financial assets, which include insurance and pensions, accounted for 16.6 percent, up from 11 percent the previous year.

While funds and trusts accounted for 15 percent, this was a drop from 28 percent the previous year. Investors have lost their confidence in funds and trust investments largely due to controversies, including those related to Lime Asset Management and Optimus Asset Management.

The trends are expected to continue this year.

Among the wealthiest, 18 percent said they will reduce their real estate investment while increasing their financial investments. The situation was the same for mass affluent individuals.
Among those who have more than 5 billion won of real estate, 29 percent said they will increase their financial investments while cutting back on real estate holdings.

The increasing of investments in financial products is also based on the projections for the local economy, especially the real estate market.

The report found that 61 percent were negative on this year’s economic growth, while 52 percent see the local real estate market worsening. The government’s increase of taxes on owners of multiple or expensive properties was considered a key factor.

The survey by Hana Institute of Finance also found that the preference for direct stock investment has increased.

While only 12 percent directly traded stocks in 2019, that figure has risen to 36 percent. The reported also noted that investor interest in overseas stocks and foreign deposits has risen as well.

Despite changes in investment plans, Korea’s rich still heavily invest in real estate.

According to the report, 31 percent of the wealthiest have total assets between 3 billion and 5 billion won, while 29 percent are those whose total wealth is between 5 and 10 billion won.

Of their wealth, 53 percent is in real estate.

The mass affluent are 76 percent invested in real estate.

By annual income, 46 percent made more than 200 million won a year.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]