The crisis in U.S. commercial real estate looms over Korea.

Published: February 18, 2024 - 5:38 PM

A man walks past a sign advertising rental properties in the Soho area of New York City on February 8. (Reuters-Yonhap) The decline in the U.S. commercial real estate market, which has already affected banks in New York, Japan, and Europe, is beginning to loom over South Korea, with losses already confirmed by major financial conglomerates amounting to about 1 trillion won ($750 billion).

The total volume of overseas risks in commercial real estate for five major South Korean financial companies currently amounts to 20.39 trillion won, according to data obtained from the companies and compiled by lawmaker Yang Kyung-sook from the Democratic Party of Korea. This figure includes only the investments made by the companies themselves and does not account for overseas real estate funds sold to clients.

Among the top five financial groups, Hana Financial Group has the largest exposure at 6.25 trillion won, followed by KB Financial Group with 5.65 trillion won, Shinhan Financial Group with 4 trillion won, NongHyup Financial Group with 2.35 trillion won and Woori Financial Group with 2.14 trillion won.

According to estimates by Deputy Yan, the initial principle of 10.44 trillion won, invested by five firms through alternative investments outside of loan requirements, such as certificates and funds, is now valued at 9.34 trillion won, reflecting a loss of 10.5 percent.

Among the five groups, KB recorded the highest investment volume of 2.8 trillion won, followed by Shinhan with 2.78 trillion, Hana with 2.61 trillion, and NongHyup with 1.81 trillion won.

Hana showed the worst results, with an estimated return on investment rate of minus 12.22 percent. KB and NongHyup also reported a return rate of less than minus 10 percent, with KB at minus 11.07 percent and NongHyup at minus 10.73 percent.

Of the total 20.39 trillion won invested by South Korean financial conglomerates, about 56 percent—approximately 11.4 trillion won—was allocated in North America.

The commercial real estate sector has come under global pressure as interest rates have risen sharply over the past few years, pushing prices down 11 percent in the U.S., the world's largest commercial real estate market, from March 2022.

Concerns have grown as the decline in property values begins to affect not only banks in the U.S. but also around the world.

A major signal was the approximate 40% collapse of New York Community Bancorp's shares on January 31. The drop in stock prices followed an unexpected quarterly loss of $252 million for the bank, leading to one of the largest sell-offs of regional banks in the U.S.