Korea’s commercial real estate market has performed well in the past years and attracted more local as well as overseas investors. Yet, not only have the Koreans got more involved in the domestic REIT market but also overseas markets like the Japanese.
Investing in Korean REITs is fairly straight forward, but there are details you should be aware of when it comes to getting started and what to pay attention to. In this article, I explain the basics you need to know before you start investing in Korean REITs.
- Can foreigners buy REITs in Korea?
- How can I invest in REITs in Korea?
- The Korean REIT Market
- What are the benefits of buying REITs in Korea?
- List of REITs in Korea
Can foreigners buy REITs in Korea?
Investing in Korean stocks and REITs is similar to that of Japan and foreigners have no particular ownership restrictions. You can own a company outright here and don’t have to deal with local and complex nominee structures.
Worth mentioning is also that Korea has 192 REITs which is truly an astonishing number. Many were issued after 2017 and we will review the REITs in greater detail at the end of this article.
I want to highlight that the Korean stock market puts large institutions in greater favor than retail investors. For example, retail traders are taxed for each transaction even if it results in a loss, which speaks for itself.
As this section only replies to the question of whether foreigners can buy Korean REITs, the simple answer is yes. In the next section, we will go into more detail about how this works practically.
How can I invest in REITs in Korea?
So, you have two options when investing in Korean REITs. You can either invest in the REIT units on an international exchange or invest in REIT shares directly through a local brokerage firm in Korea.
The latter option will result in a wider range of options and lower transaction fees. As this can be a bit more complicated than simply buying REIT units through an international broker, we will focus on the process for this option in this article.
1. How do I open a Korean stock account?
To trade on the Korea Exchange (KRX), you first have to open a trading account with the help of a licensed securities company. The company must have received a KRX and the firms are sometimes simply referred to as ‘members’.
If you’re legally residing in Korea, some companies might claim that you cannot open local trading accounts as you’re a foreigner. This is not correct and you just have to work with the right firm.
If you’re a foreign non-resident, on the other hand, you’ll also need a so-called Investors Registration Certificate (IRC) from the Financial Supervisory Service FSS).
It’s a financial regulator that reviews and supervises financial institutions. It’s a subsidiary of the Financial Services Commission, similar to the SEC in the US.
Getting an IRC is often easier said than done as it mainly boils down to how large financial volumes you have access to and how often you plan to trade.
According to the Korea Financial Investment Association, foreigners also need to secure a Standing Proxy, which is typically a global bank. The bank will act as a custodian, providing financial-related services, money transfers, security, and foreign exchanges, for example.
Stock Brokers Available in Korea
One of the most important steps in the process is to find a reliable stockbroker that won’t overcharge you and that has experience in helping foreign customers.
Below, I have listed some of the most popular and reputable stockbrokers available at the moment and that can help you buying stocks directly in Korea, or via a local broker in the US, for example.
- Saxo Bank
- Interactive Brokers
All of the brokers offer different advantages. For more in-depth information, I recommend that you visit each broker’s website and contact them for more information about their services and fees.
2. Opening a Korean Bank Account
If you’re living in Korea, might you work or study, you generally have no issues opening a local bank account.
Foreign non-resident and new arrivals can also open accounts, but with some restrictions as the transactions have to be done with the help of a teller at a local branch and not through ATMs.
You can first get access to ATMs after 3 months, but that won’t affect you much if you just plan to trade stocks. Keep in mind that you have to visit Korea in-person and you cannot open a bank account from abroad.
You won’t have to schedule an appointment in advance but can simply visit the bank directly. But, it can make sense to give them a call beforehand to clarify fundamentals, if needed.
Being one of the most developed countries in Asia, Korea has a transparent banking system and plenty of banks. You can find everything from international banks to local banks that cater to foreigners.
Some of the most popular options include:
- Standard Chartered Bank Korea
- China Construction Bank
- Agricultural Bank of China
- Citi Korea
- Hana Bank Korea
For more information, simply visit the banks’ websites and contact them if needed. I also suggest you talk with your brokerage firm as they might work closely with certain banks and have recommendations.
The Korean REIT Market
Korea’s commercial real estate market has shown a strong performance in previous years and so has its REIT market. The REIT system was introduced as early as 2001 and the country has one of the most developed REIT markets in the world.
The market has great potentials to grow much in the coming years, which can be backed by the following information and data:
- Other countries with developed REIT markets like Singapore, Australia and Japan have market capitalizations that account for 3% to 7% of the countries’ GDP. In Korea, on the other hand, the REIT market only accounts for around 0.1% of the country’s GDP. This emphasizes that there’s more room for future growth
- As mentioned, Korea’s commercial property market has been growing quickly, particularly since 2015. The capitalization of the REIT market has increased much as well, but not as much as the commercial real estate market overall
The Growth of Korea’s REIT Market:
Below you can find how the number of REITs has increased along with total asset value from 2010 to 2017, according to the Ministry of Land, Infrastructure, and Transportation:
- 2010: 50 REITs / KRW 7.6 trillion
- 2011: 69 REITs / KRW 8.2 trillion
- 2012: 71 REITs / KRW 9.6 trillion
- 2013: 80 REITs / KRW 11.8 trillion
- 2014: 98 REITs / KRW 15.0 trillion
- 2015: 125 REITs / KRW 18.0 trillion
- 2016: 169 REITs / KRW 25.0 trillion
- 2017: 192 REITs / KRW 33.8 trillion
What are the benefits of buying REITs in Korea?
It’s well-known that REITs have transformed real estate markets thanks to the many benefits offered.
Even if REITs offer market access in emerging countries, they are popular in developed countries developed countries like Australia as you can own a slice of high-income generating shopping malls, for example.
1. Market Access
One of the clearest benefits of investing in Korean REITs is market access.
There are 192 REITs available that invest in various types of residential and commercial real estate and the number is growing. Not only foreign investors suffer from challenges due to market access in the physical real estate market, but also Korean.
By investing in REITs, you will be able to own a piece of premium shopping malls and hotels in the most central parts of Seoul. Such kind of units is otherwise beyond the reach of retail investors.
Owning shares in REITs is also beneficial in the sense that you can sell the shares at any time.
That’s not the case if you own a complete physical structure. The transfer process can be lengthy and costly when adding all the taxes and related costs. REIT investments are well-known for being significantly more liquid, which is one of the key benefits.
3. Substitute for Owning Real Estate
Owning physical real estate is an obligation as you have to manage property management, maintenance, continuous payments of fees and various property taxes, and the list goes on.
Many investors don’t have the time nor energy to manage a property, especially if it’s located far away.
Investing in Korean REITs can be a great substitute for investors who want to spend less time on their investments, but profit from the growing commercial real estate market.
4. Generally High Dividends
REITs are known for generating high dividends, it’s one of the prime reasons why they are so popular.
Korean REITs have performed well in previous years, it’s not strange that local and foreign investors have got a stronger interest in this type of investment.
5. Low Minimum Capital
Buying a commercial unit in the central parts of Seoul will most likely set you back tens if not hundreds of millions of US dollars. Investing in Korean REITs is significantly cheaper and you won’t need more than a few hundred dollars to get started.
This is especially beneficial for retail investors.
List of REITs in Korea
Korea has 192 REITs, 7 are listed. As such there are many options, but also research is required for investors. To give you a helping hand, I created the below list where I list REITs in Korea.
Lotte REIT was introduced in 2019 and currently has 8 units in its portfolio:
- Lotte Dept.Store Gangnam Branch
- Lotte Dept.Store Guri Branch
- Lotte Dept.Store Gwangju Branch
- Lotte Dept.Store Changwon Branch
- Lotte Mart Uiwang Branch
- Lotte Mart / Outlet Cheongju Branch
- Lotte Mart / Outlet Daegu Yulha Branch
- Lotte Mart Jangyu Branch
The REIT issues dividends bi-annually in June and December with a dividend yield of 4.94% in June 2020.
NH Prime REIT
NH Prime REIT was founded in the same year as Lotte REIT, in 2019. The company’s main tenants include Samsung, Naver, EA, and Workflex. At the moment, they have the following assets in their portfolio:
- Seoul Square
- Gangnam N Tower
- Samsung C&T Seocho office building
- Samsung SDS Tower
The units comprise office space and are located in some of the prime areas of Seoul.
In November 2020, the REIT issued a dividend yield equal to 5.86%, which is indeed not bad.
Shinhan Alpha REIT
Shinhan Alpha REIT was introduced in 2017 and as you can hear by its name, the REIT is managed by the large conglomerate Shinhan Group. The REIT is mainly involved in the acquisition, development, management, rental, and disposal of real estate units.
To summarize, the trust secures funds from individual and institutional investors. In September 2020, the REIT offered a dividend yield of 4.28%.
For more information about other REITs in Korea, I recommend you visiting the Korean Exchange’s website.
Disclosure: This information is intended for educational purposes. It does not constitute investment advice and should not be considered as a recommendation for investment. The writer of the article and the owners of the website don’t own any of the securities/REITs mentioned in the article. Note that the value and income of investments can go up, as well as down (resulting in a loss).