Sluggish economic growth and a bleak stock market outlook have pushed South Korean securities firms to expand their horizons by turning to real estate investment.
While some brokerages prefer to operate teams dedicated to real estate investment trusts, or REITs, others choose to establish subsidiaries, suggesting full-scale portfolio expansion.
Yet the trend has some observers worried that the competitive game might result not in market diversification but in an oligopoly among top-tier players.
“REITs could keep up momentum until next year, on condition that the current low interest rate trend is prolonged,” said Kim Hoon-gil, an analyst at Hana Financial Investment.
Of the 240 REITs here, six have gone public so far, according to data from the Korea Association of Real Estate Investment Trusts. Their combined assets, amounting to 1.63 trillion won ($1.38 billion), account for 2.5 percent of the market.
Last week, NH Prime REIT wrapped up an initial public offering with its subscription deposit totaling a record 7.75 trillion won. In October, Lotte REIT made a successful debut on the benchmark Kospi.
Meanwhile, Homeplus REIT -- affiliated with the local retail chain -- is gearing to return to the market next year after failing to raise the target 1.73 trillion won amid lukewarm responses from institutional investors.
Mirae Asset Daewoo established a REIT initial public offering team in July last year in hands with subsidiary Mirae Asset Global Investments, an asset management company.
KB Securities also kicked off a REIT IPO team earlier this month, in collaboration with its subsidiary KB Real Estate Trust.
Some brokerage firms have chosen to set up separate real estate trusts.
In October, the Financial Services Commission granted licenses to three companies -- Shinyoung Asset Trust, Korea Investment and Securities Real Estate Trust and Daishin Asset Trust. This was the first time since 2009 that the financial regulator has granted approval for new players to enter the local real estate trust business.
Last year, the government had vowed to expand the REIT market volume to 60 trillion won by 2021, offering benefits including a tax cut to 9 percent from the current 14 percent for listed REITs.
“Some companies choose to enter the real estate trust business as a way to trigger new profits, but (this market trend) may be a signal that the securities business has stopped growth,” said an official at one of the brokerage firms here, who wished to remain anonymous.
Concerns are also mounting about the polarization of the market, with top-tier players increasingly coming to dominate the new business area.
“The REITs business will swiftly become highly competitive, making it difficult for small-sized firms to enter the market in the first place,” said an industry official, refusing to be named.
By Jie Ye-eun (firstname.lastname@example.org