South Korean investors increase appetite for Australian property and infrastructure

South Korean investment hits a record high.

Foreign direct investment flow from South Korea into the Australian market is set to hit a record high in 2013, with institutional investors in Australia’s fourth largest trade market buoyed by a desire for core property and infrastructure assets, according to The Trust Company.

Speaking at a seminar with Austrade in Sydney, The Trust Company’s General Manager – Corporate Clients, Andrew Cannane, predicted 2013 to be a watershed year with South Korean investment in foreign infrastructure and property likely to exceed $5 billion including over $1 billion to Australia.

“South Korea is the next big thing. These investors prefer transparent markets with good professional standards and corporate governance, so they are focusing on the core markets of the US, UK and Australia. They have told us that they regard Australia as one of the best core property markets in the world,” Mr Cannane said.

Despite retreating to focus on local investments post GFC, South Korean pensions funds, in particular, have been driving the next wave of investment into Australia with recent deals including Central Coast-based Erina Fair and Spring St in Melbourne whilst another Korean investor is in due diligence on Sydney’s Four Seasons Hotel.

“South Korea’s National Pension Scheme, which represents the fourth largest pension fund in the world, is leading the push in Australian investment, with the country’s growing inflow of pension contributions expected to further boost foreign direct investment,” Mr Cannane said.

A presentation from Austrade’s Gabriella Nunes noted that South Korea is Australia’s fourth largest trading partner (two way trade) worth A$33.3 billion in foreign trade.

South Korean investors favour lower risk, lower return investments, such as commercial office buildings with long leases to government tenants and will seek to manage FX and interest rates by hedging.

“South Korean institutional investors have a strong knowledge of investment structures available to them, including MITs and thin capitalisation as well as an understanding of stamp duty requirements,” Mr Cannane said.

“South Korea has the potential to be a significant player in Australian property and infrastructure markets in the years ahead.”