Korea-based IGIS Asset Management has announced plans to drop its renovation project of an 11-story apartment, an unwilling decision triggered by the government’s claims that private equity funds’ foray into real estate is at fault for the surge in housing prices.
Korea’s investment banking industry is in a panic over the fact that the left-wing government is blaming the finance industry for their own failure to curb housing prices.
IGIS purchased a privately-held Samsung World Tower Apartment building for approximately 40 billion won in June. The firm intended to inject an additional 40 billion won to renovate the 23-year-old obsolete building and lease its 46 apartments. The building is located in the upscale residential area of Gangnam which makes it an attractive asset with the potential to increase in value after an overhaul.
IGIS Asset Management is a real estate investment firm with $27.7 billion assets under management. Its expertise is in real estate investments such as hotels, offices, and apartments. The firm has a solid reputation and has worked frequently with US-based private equity firm KKR & Co for Korea-based investments.
The recent investment into Samsung World Tower Apartment is part of the firm’s strategy to purchase out-of-date buildings and to spruce it up for resale or for lease to offer fine quality housing for tenants who aren’t able to find affordable housing.
IGIS came under fire when the Minister of Justice Choo Mi-ae voiced her discontentment over the firm’s investment, using it as an example to push for separation between finance and real estate.
“Finance and real estate in Gangnam have a romantic relationship going on. A private equity fund has purchased a residential building that offers 46 apartments in Gangnam. This fund is trying to sidestep regulations on multiple house ownership while earning profit through lease and resale,” Choo posted on her Facebook on July 20.
Choo also urged the opposition party to regulate private equity funds from investing in residential apartments.
On July 22, the Ministry of Justice stated that it will crackdown on any illegal activities that occur in the real estate industry and ordered prosecutors to investigate illegal conducts such as tax evasion, borrowed-name transaction, unauthorized development of farmland and development zones, as well as speculative behavior among private equity firms which may have caused the surge in housing prices.
This has led IGIS to unwillingly drop the renovation project to avoid further attack.
“The uncertainties in the housing market have made the government wary of apartment speculation. We have decided to liquidate the fund because we want to prevent any misunderstanding or controversy that may arise and protect our investors,” IGIS explained.
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