Real-estate exposure has been showing cracks at home and abroad after interest rates rose, prompting financial firms including T. Rowe Price Group Inc. and Nomura Holdings Inc. to express concern about stress in shadow loans to the sector.
“What is happening in Korea is probably a microcosm of what could be happening elsewhere,” said Quentin Fitzsimmons, a global fixed-income portfolio manager at T. Rowe Price Group Inc. “It has made me concerned.” South Korean President Yoon Suk Yeol suffered a loss in a parliamentary election earlier this month, but with the polls at least out of the way, authorities may have freer rein to refocus on cleaning up soured loans.
But the worst from Korea’s property malaise is likely yet to come. Citigroup economist Jin-Wook Kim reiterated the bank’s view this month that restructuring of project finance debt will slow economic growth in the second half to 0.2 percent in their base case scenario.