For South Korean investors, U.S. properties have traditionally been a prized investment option but this trend may be changing now. Right until the year 2016, South Koreans, more so the institutional investors than private individuals, seemed to show a clear preference for real estate in the U.S. but this happy state of affairs appears all set to change. The reason behind this is likely to be the many transformations that are taking place in terms of how easy and lucrative it is for them to invest here.
The fear that U.S. properties are at near peak prices
For South Koreans investors or for any investor, for that matter, the key to investing in any asset is its potential to increase in value. An asset that seems to be unlikely to rise in value does not appeal to the smart investor because of the limited opportunity it presents for good returns at sale point. This is the chief problem that is causing South Koreans to rethink their investment strategy in real estate in the U.S. The prevailing feeling among them appears that properties here have their reached or are very close to their peak prices and this means that the likelihood of them increasing significantly in value over the years is highly restricted. They believe that the prices may actually begin to drop soon, which would mean that investing now would leave them with a loss making asset in their portfolio.
A cautious mindset
Another thing that could drive South Korean investors away from U.S. properties is that they are traditionally a cautious breed of investors. This means that the focus in heavily skewed in favor of protecting their principal, more so than looking towards returns. Given this, and given the Loan to Value ratios that stand currently at 70% at a maximum, investing in U.S. property is really not the sagacious move for them to make.
Debt products in the U.S. may present the more sensible investment opportunities for them, especially since the interest rate gap between their home country and the U.S. is narrowing down. In the coming months, we may witness a slow but steady shift to debt instruments and out of U.S. real estate by this group of investors, if the analysis is accurate. This will address the South Korean need for safe investments while fulfilling the basic requirement for good returns.