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Brokerages on alert as overseas real estate investments suffer losses

Office buildings of Korean brokerages in Yeouido, Seoul (Yonhap)
Office buildings of Korean brokerages in Yeouido, Seoul (Yonhap)

South Korean brokerages are on high alert as funds related to foreign real estate -- and their direct investment in property ownership abroad -- are likely to suffer losses in the novel coronavirus pandemic situation, according to industry sources on Wednesday.

As the current crisis sends property values tumbling with market chaos in major countries, the S&P Global REIT index plummeted 31.87 percent from the beginning of the year to Monday, while the S&P 500 plunged 17.55 percent in the cited period.

According to latest data from global property consultancy Savills, local institutional investors, including brokerage firms’ European real estate investment funds, marked about 12.5 billion euros ($13.6 billion) last year, up 122 percent on-year.

“Hotel and retail REITs’ earnings from leasing has most rapidly reduced as the tourist industry around the globe has shrunk with the COVID-19 outbreak,” said Kim Hyung-keun, an analyst at NH Investment & Securities.
“Enlarging vacancies and US rent strikes are posting a greater uncertainty in future leasing revenues,” he added. 


As Nevada authorities ordered casinos closed for the first time amid the COVID-19 outbreak, the Las Vegas Strip is deserted on March 18. (AP-Yonhap)
As Nevada authorities ordered casinos closed for the first time amid the COVID-19 outbreak, the Las Vegas Strip is deserted on March 18. (AP-Yonhap)

The virus outbreak further becomes more of a burden for the brokerages as their unsold overseas properties were stocked up after sell-down failures to related funds.

Market watchers are paying closer attention to Mirae Asset Financial Group. It signed a contract with China’s Anbang Insurance to acquire 15 five-star hotels and resorts in key US cities in September last year, marking the single highest number in overseas alternative investments by a Korean company.

The market experts are concerned over the firm’s takeover deal. In the meantime, Mirae Asset Global Investment said that there is no change in its acquisition plan and no problem in fund preparation.

Despite the assurance, some local securities firms lowered their investment opinions on Mirae Asset Daewoo. “Due to the COVID-19 outbreak, we’re worried about Mirae Asset’s invested assets such as the US hotel portfolio,” said Jung Jun-sup, an analyst at NH Investment & Securities.

“The global tourist industry is in the worst situation, and it’s hard to predict when it will recover. Mirae Asset Daewoo has quite a lot of exposure in the industry, so there is enormous uncertainty with the virus issue,” Jung added.

Moody’s Investors Service also placed the ratings of six local securities firms -- KB Securities, Korea Investment & Securities, Mirae Asset Daewoo, NH Investment & Securities, Samsung Securities and Shinhan Investment -- under review for a downgrade from stable.

The downgrade review comes as volatility in the global and domestic financial markets stemming from the COVID-19 outbreak is weighing on the local security firms’ profitability, capital adequacy, funding and liquidity.

“Their alternative asset sales have risen as they have become increasingly focused on both domestic and overseas investment opportunities. While most securities firms plan to sell these acquired assets to retail and institutional investors, these plans may fail in which case the securities firms will be required to maintain funding for an extended period, increasing the risk of valuation losses,” Moody’s said.

By Jie Ye-eun (yeeun@heraldcorp.com)
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