As hostilities between North and South Korea subside and diplomatic efforts increase, private real estate investors have been considering where the first property bets could be placed.
With the leadership from the two countries having met three times since April, and with a second meeting between North Korean leader Kim Jong-un and US president Donald Trump being discussed, optimism surrounding cross-border investing is mounting.
“Infrastructure will be the first,” said Sung Seog Kang, chief investment officer at the Korea Teachers’ Credit Union. “After opening their economy and making some changes on the regulatory front, the hotel sector will be attractive.”
North Korea’s curiosity factor will play a big part in attracting investment, Kang believes: “Because many people think North Korea is a mysterious and secretive country, there will be huge demand.”
In agreement was Dong Hun Jang, chief investment officer at the Public Officials Benefit Association, the Seoul-based pension plan. POBA currently has about $3.4 billion of real estate assets, equal to about a third of its overall holdings. While the pension plan has no investments in North Korea, Jang, who is leading POBA’s global expansion, also suspected infrastructure-related properties would be where the country’s first opportunities arise from.
“We haven’t done any investment in North Korea, but my guess is that the first potential real estate investment opportunity there might be one related to a public infrastructure project with backing from the government or global institutions,” he said.
Jang, meanwhile, is focusing POBA’s efforts on an international wish list that includes debt products and REITS in the US and offices in Europe. He said: “We are looking for investments that can generate great returns with relatively low risk. In real estate, we are focusing on US debt and real estate investment trusts, while, in Europe, we focus on regulated infrastructure deals as well as small and medium sized office projects.”
Both Jang and Kang say their respective organizations have outperformed their internal benchmarks in recent years, but Kang says it is particularly difficult to deploy funds at this point in the market cycle.
KTCU, has approximately $5.3 billion in real estate assets under management, equal to roughly 18 percent of its overall assets, but adding to these numbers is more challenging today, he said. “Assets in the US and western EU countries carry high valuations and key markets are highly competitive. In this environment, we should try to find other targets, but emerging markets such as Central and Eastern Europe, Latin America and Africa have their own sets of challenges too. They don’t have stability from a regulatory standpoint.”
Both Kang and Jang will be reflecting on the North Korean investment opportunity, international deployment more generally and other topics at the forthcoming PERE Investor Forum Seoul 2018, happening between November 28-29 at the Westin Chosun Seoul.