Tips for investment strategy
Analysts advise buying stocks, gold but putting homes on hold
By Jung Sung-ki
Those looking to invest in the Korean markets of real estate and equity are now facing a Hamlet-like dilemma: To invest now or wait for better timing.
Such a question comes as stagnation in the local housing market continues and Seoul shares appear to be sliding after foreign investor selling amid growing uncertainties in global markets, including slowing U.S. economic growth and Greece’s debt crisis.
For Korean investors, the drift of the commodities markets is also a top concern, as the price of commodities, including oil, gas and precious metals such as gold and silver is largely unpredictable.
Real estate market
Many experts say now is not an opportune time for buying homes here, citing still low confidence in the real estate market.
Despite measures unveiled by the Korean government earlier in the year to extend tax benefits to real estate investors in the Seoul metropolitan area and widen financial support for local builders, investor confidence in real estate remains low.
That’s because it’s unlikely for the government to come up with more real estate policies in the near future and the domestic economy is still not so stable, according to experts.
“You’d better to invest in the real estate market later this year after keeping a watch on the government’s moves on interest rates and any other policies toward the property market,” Lee Kwan-seok at the private banking business team of Shinhan Bank said.
An Woori Bank analyst said the real estate market is expected to enter an upward trend after the third quarter of the year.
“Investors are advised to invest in rental home business with the real estate market entering a recovery phase,” he said.
According to the Construction Economy Research Institute, home sales is likely to increase in the Seoul metropolitan area later this year or early next year despite the lack of supply of houses in short term.
“It is anticipated that demand for new homes are to decrease by an average of 7,000-8,000 homes annually by 2030,” the institute said in a recent report on the outlook of the domestic housing market in the mid- and long-term. “By 2030, the demand is expected to decrease by 30 percent.”
Savills Korea, a global real estate agency with its parent company based in London, advises foreign investors on buying Korean commercial real estate, including shopping malls and restaurants, citing an increasing number of tourists to Korea and a booming retail sector.
With favorable currency conditions and increasing interest in Korean pop culture, the country witnessed a dramatic surge in foreign visitors last year. As a result, several retail sectors benefited from a boost in sales volume, in particular luxury goods and cosmetics sold in department stores, according to Miah Yang, director of retail services at Savills Korea.
“”Many global fashion brands and famous restaurants are knocking on the door to enter the Korean market and to be part of this growth,” she said.
Despite the sluggish investors’ sentiment here, a growing number of ethnic Koreans abroad are looking to invest in the domestic property market, according to the Ministry of Land, Transportation and Maritime Affairs.
In the first quarter, overseas ethnic Koreans bought 507.3 billion won of real estate in Korea, 70 percent up from the fourth quarter of 2010.
Koreans residing in the United States invested in 355.4 billion won, two thirds of the total, and most investors purchased homes, according to the ministry.
Experts attribute such an increase to the facts that concerns over the bubble burst of the local property market have been diminishing recently after three to four years of readjustment of the real estate market price, and the Korean economy stands strong with a modest growth rate of about 4.5 percent among OECD member countries.
“As the U.S. housing market is experiencing a double dip, Koreans residing in the states is showing keen interest in the Korean real estate market,” said Ko Jong-wan, head of RE Members, a real estate consulting firm in Seoul.
Koreans in Japan are also paying attention to the Korean real estate market in the wake of the deadly earthquake earlier this year.
“There is an increasing number of consulting requests by Koreans in Japan to buy second houses in Korea or profitable shopping malls,” he added.
Seoul shares have moved in a limited range recently, pressured by foreign investor selling. Analysts view this is more of a natural readjustment than a longer-term pullback and is also affected by external factors, such as worsening U.S. economic indices and debt problems with Greece.
On Friday, Seoul shares ended flat with modest foreign buying. The Korea Composite Stock Price Index (KOSPI) ended down 0.03 percent at 2,113.47 points. Foreign investors were net buyers of modest 19 billion won ($17.6 million) worth of stocks.
A day before, KOSPI ended down 1.3 percent as investors jitters grew amid signs that the U.S. economic recovery was fading, while debt problems lingered in Europe. Foreign investors were sellers of a net 40.4 billion won worth of stocks.
“Volatility continues to rule the market amid global economic uncertainty including concerns of a double-dip of the U.S. economy," said Lee Kyoung-soo, a market analyst at Shinyoung Securities. “The market has formed pretty firm support at the current level, and we do not see significant downside risk from this point.”
Kim Yeon-joon at Hana Bank’s PB team recommended investments in the local stock market.
“Several factors, including recent deteriorations in global liquidity, U.S. steps to stimulate its economy, Chinese measures to expand its domestic demand, and the March 11 Japanese earthquake, are powering the Korean economy,” Kim said. “After a short-term correction, the local stock market is expected to enter an upward trend again.”
Stock analysts suggest investors carry automakers, refineries, semi-conductors or parts manufacturing.
Despite recent fluctuations in the price of gold, analysts here and abroad are buying it, as U.S. budget concerns and fear of inflation in emerging markets have led investors back into the precious metals market in order to avoid currency fluctuations.
With stagflation fears spreading worldwide, a number of the world’s central banks are accumulating gold, as it has reclaimed its role as a monetary asset and the ultimate store of value.
On May 2, gold reached a record $1,577.40 an ounce but the price has been up and down since then. Last Thursday, Gold for August delivery closed down $10.50 to $1,532.70 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,545.50 and as low as $1,520.40 during the session, while the spot gold price was down $3.60, according to Kitco's gold index.
Analysts say that although there is some burden with tax and foreign exchange losses, gold is still considered a good pick because it is likely to continue on an upward trend due to lingering uncertainties.
“Domestic investors have not fully enjoyed the fast rise in gold prices over the past year due to additional costs associated with taxation and foreign exchange losses,” said Kim of Hana Bank. “But if you’re engaged in indirect investment in gold after opening a gold account, you could increase the investment return by up to 10 percent.”