Translation to English
[Exclusive] "Korea’s real estate market never crashed … one could be looming"
Hyun-sook Cho for Joongang Ilbo
November 20, 2018
“There are very few markets in the world that have not experienced a major real estate market crash like in Korea. The crisis facing the end of 10 years of low interest rates is likely to trigger in the real estate market. Korean investors should be prepared for a real estate market crisis.”
This is a warning from Ohad Topor, Chairman andCIO of TCK Investments. We met him during his visit to Korea at TCK Investments’Seoul office in Gwanghwamun in Seoul on November 16. TCK Investments is a global investment management company that was established jointly by Mr. Topor and the world-renowned investment expert Howard Marks, founder of Oaktree Capital, in 2012. TCK Investments has offices in England and Korea. The following is a Q&A with Mr. Topor.
Q: Is it time to prepare for a crisis?
A: There is something that Howard Marks, Co-Founder of the TCK, mentions repeatedly; “you cannot predict, but you can prepare". According to various analysis, it is clear that a crisis is looming. It is just not possible to foresee the exact time. The whole world has been maintaining low interest rates for the past decade. Many businesses and investments took place that never before would have because the interest rate was low for taking out loans. This has led to imbalances in various places. These bubbles
will eventually collapse if interest rates rise. If this kind of crisis takes place Korea will be hit, and in particular the real estate market.
Q: The Korean real estate market has never collapsed before. Many Korean investors are still rushing to apply for new Gangnam apartment buying opportunities.
A: I am not an expert on real estate in Korea. However, I have observed various real estate markets investing globally. Most countries have experienced a real estate bubble burst. Japan, for instance, has yet to fully recover from the collapse in the real estate market since the 1990s. Unlike other countries, Korea has not experienced a real estate market collapse because the interest rate has not spiked sharply yet. Large bubbles are being found everywhere in real estate markets around the world. I mean global markets and not specifically the Korean market. With the end of low interest rates, the next crisis is likely to occur in the real estate market. Not only Korea but the entire world will face this crisis, though, Korea is at particular risk. The Korean real estate market is not diversified enough and investors with similar tendencies own similar levels of wealth and properties. What would happen if these properties are put up for sale simultaneously? Property prices will plunge.
Q: There is constant criticism that Koreans hold their assets concentrated too much in real estate.
A: It is hard to find a region that has such a high concentration of assets invested in real estate as in Korea. Real estate is an asset with very low liquidity. Assuming that a global financial market crisis impacts Korea, it will be difficult to sell all of these properties at once. If this building (where the interview was being conducted) has to be sold right now, the price would have to be discounted at least 30% in order to quickly find a buyer.
Q: Then what are the alternatives?
A: There are two alternatives. Investments should be considered in assets with qualities that are the opposite of real estate, so highly liquid assets.Above all, Korean investors should invest in diverse regions outside of Korea. The second is that they should be assets invested in US dollars. During crisis, the dollar appreciates. Whenever an economic crisis occurred in the past, the Korean stock market fell and the dollar rose. If you hold dollar assets as a Korean investor, you can sell dollar assets during a crisis and buy Korean won assets at low prices.
Q: What rationale do you have to say so?
A: If we invested in Gangnam real estate in 1989, we would have earned about three times as much money, as of the end of last year. If we invested in the KOSPI, we would have almost four times returns. In addition, if we had invested in a global balanced portfolio it would have grown six times, and up to ten times if we account for the appreciation in currency (based on TCK Investments’ own indices.)
Q: The price of Eunma Town(101m2) apartments, was KRW50million in the late 80s, is nowKRW1.8billion. It has risen more than 30 times. Is that statistic correct?
A: That is because we only count the apartments with the highest returns inGangnam area. Some US tech companies are50 to 100 times more profitable than others. We are not looking at the highest returns but the trend on average. We should not read the entire market trend by only looking at the highest returns.
Q: You emphasized that investments should be diversified across dollar assets. The US financial market cannot be considered safe, as share prices of tech stocks including Apple are faltering.
A: Dollar assets are not just assets in theUS but various markets around the world. However, since the dollar is a key currency, it does not fluctuate as much during a crisis. There is a lot of concern
about global markets. If a crisis comes after a decade of low interest rates, emerging markets, especially export-dependent countries, will be at greatest risk. This includes Korea. This is why we advise you to invest in global dollar assets with urgency.
◇Ohad Topor, Chairman and CIO of TCK Investments TCK Investments, a global investment company operating in Seoul and London, began its business in 2012. It provides customized wealth management services for UHNWI, entrepreneurs and corporations. The average investment asset size per customer is approximately KRW10billion. In March 2018, Young-ki Hwang, former head of the Korea Financial Investment Association, was appointed as the Senior Advisor to TCK.
Ohad Topor is a professional investor from Israel. He holds a Master’s in Business (MBA) from Stanford University,Graduate School of Business, and holds a BA in Economics from Tel Aviv University in Israel.Mr. Topor has been an active investment manager for 18 years at various firms including Square Capital, with expertise in global investing.