Global property market plunge hits Korean financial firms

The five major financial providers see 10.5% losses in their offshore properties; the deficit will increase if rates remain high

Office buildings in New York (Courtesy of Getty Images)

Eui-Jin Jeong 2

Feb 19, 2024 (Gmt+09:00) justjin@hankyung.com

Real estate

South Korean financial service companies are seeing increased losses in global real estate amid the commercial property value plunge and concerns are growing that the losses will rise further as the Federal Reserve seems in no rush to cut rates, market insiders say.

Korea’s five major financial service holding companies – KB Financial Group Inc., Shinhan Financial Group Co. Hana Financial Group Inc., Woori Financial Group Inc. and NongHyup Financial Group Inc. – are investing a total of 20.39 trillion won ($15.3 billion) in 782 overseas properties, according to data collected by the finance committee of Korea’s National Assembly on Sunday.

The combined capital injection is the holding firms’ investment in offshore properties, separate from the firms’ real estate fund sales to their clients.

The five majors have invested 10.44 trillion won in 512 non-debt instruments such as equity funds for global real estate. The properties’ combined value has dropped 10.5% to 9.34 trillion won, according to the data.

By firm, Hana posted a 12.2% loss from its original amount of investment. KB logged 11.1% and NongHyup saw a 10.7% deficit. Shinhan and Woori had 7.9% and 5% losses, respectively.

For overseas debt instruments such as bonds and credit, the five holding companies have invested around 9.94 trillion won. Hana has invested 3.63 trillion won in 98 debt instruments; KB has injected 2.85 trillion won in 47; and Woori has financed 1.71 trillion won in 63. Shinhan and NongHyup have invested 1.22 trillion won and 535.1 billion won, respectively.

Most of the investments are in senior-secured loans, which protect the investment principal. However, some posted losses due to plunging collateral values.

As the Fed signals no rush to rate cuts and many workers haven't returned to work in offices, values of commercial real estate in the US and other key markets are likely to drop further and will hurt the Korean financial firms’ portfolios, market insiders say.

With office demand unlikely to recover in the near term, the US commercial real estate market will experience deteriorating profitability and additional corrections, according to a Korea Center for International Finance report released earlier this month.

Write to Eui-Jin Jeong at justjin@hankyung.com

Jihyun Kim edited this article.