The sluggish returns of public real estate funds, which pool money from multiple investors to invest in overseas properties, have continued. Following two consecutive years of negative returns in 2023 and 2024, the return rate barely reached 0.2% at the end of last year. This is attributed to falling property values due to a slump in overseas office markets and rising interest rates, which have increased loan burdens. Even if rental income is generated from buildings, investors risk losing their principal if loan repayments are not met, prompting calls for clearer disclosure of product structures and risks before subscription.
According to data received by Rep. Park Daechul of the People Power Party’s office from the Financial Supervisory Service on the 19th, the return rate of overseas public real estate funds fell from 15.9% at the end of 2021 to 0.5% at the end of 2022. It recorded -11.7% at the end of 2023, -9.7% at the end of 2024, and narrowly reached 0.2% at the end of last year. Domestic public real estate funds, meanwhile, rose from -0.2% at the end of 2023 and 0.1% at the end of 2024 to 13.9% at the end of last year.
Public real estate funds are products that pool money from multiple investors to invest in buildings or real estate-related assets. They typically distribute rental income and return investments by selling the property at maturity. As of the end of August 2024, there were 30 public real estate funds domestically and overseas, with net assets of 2.5 trillion Korean won.
Among overseas real estate funds, some have lost most or all of their invested principal. The “E-Global Real Estate Investment Trust No. 229,” which invested in the Frankfurt, Germany office building “Trianon,” is expected to lose most of its principal as the local property-holding company entered insolvency proceedings. The “Korea Investment Belgium Core Office Real Estate Investment Trust No. 2,” which invested in long-term leasehold rights for the Tour & Taxis building in Brussels, Belgium, has confirmed total losses after failing to sell the asset and repay loans.
Real estate funds often add loans to the pooled investment money rather than purchasing properties solely with investor funds. When selling a property, loan repayments are prioritized, and the remaining funds are returned to investors. If property values fall, the amount returned to investors decreases as more funds are allocated to loan repayments.
Since the 30th of last month, the Financial Supervisory Service has required simplified investment prospectuses for new high-risk public funds, including overseas real estate funds, to disclose key risks such as principal loss. If similar products from the same manager have recorded losses exceeding 20%, the fund name, investment region, asset details, loss date, and scale must also be disclosed. A source from the financial investment industry stated, “Even if the prospectus mentions the possibility of losses, it is difficult for investors to grasp actual loss cases and their scale,” adding, “Investors should not only consider rental income but also loan sizes, maturity dates, and the potential difficulty of asset sales.”
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