South Korea flags risks in US$56 billion of overseas property funds
SOUTH Korea’s financial regulator has a close eye on overseas real estate funds worth roughly US$55.8 billion, saying investments by individual investors are the most concerning.
Financial Services Commission (FSC) vice-chairman Kim So-young said at a briefing in Seoul on Thursday (Aug 17) that while institutions might get hit with losses, there wasn’t systemic risk. He said that 96 per cent of the funds are held by institutional players.
“What we’re really worried about is the retail investor portion,” worth 3.1 trillion won (S$3.14 billion), he noted. “If there is any kind of misconduct in terms of fund sales or anything like that, we’re going to take a hard line on that.”
The comments come as red flags pop up in the global market for real estate finance, with South Korean investors looking particularly exposed to a downturn in the market for office blocks.
On the domestic front, a credit union branch was forced to close earlier this year after customers pulled deposits due to concern about soured loans, just months after the default of a developer caused a credit crunch.
Last month, Korea’s Financial Supervisory Service told brokerages to make provisions for bad debt.
The FSC vice-chairman cited the fact that the funds’ maturities were spread out, as well as the fact that firms might put in place countermeasures, as reasons the problem would be ringfenced.
“I think the likelihood of investor losses, of course, could happen, but the likelihood of it escalating to systemic risk is fairly small,” he added. BLOOMBERG
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