Overseas Real Estate Defaults Remain at 2 Trillion Won in Financial Sector... Eyes on Middle East Uncertainty

Overseas Alternative Investments Reach 55 Trillion Won
EOD Amount at 2.06 Trillion Won... Continuing Downward Trend
Monitoring Potential Additional Risks from Middle East Situation

It has been found that the size of overseas real estate projects at risk of default among South Korean financial companies amounts to approximately 2.06 trillion won. Since the proportion of these investments relative to total assets is not large and financial institutions are proactively reducing their exposure to bad assets, the likelihood of a systemic risk spreading is considered low. However, concerns have been raised that if the war between the United States and Iran prolongs, a shock originating from the Middle East could affect the real estate market and increase defaults.

According to the Financial Supervisory Service on March 17, as of the end of September last year, the balance of overseas real estate alternative investments by domestic financial institutions stood at 55.1 trillion won, an increase of 600 billion won from the previous quarter. This represents about 0.7% of the financial sector's total assets, which amount to 7,653.9 trillion won.

By sector, insurance companies accounted for the largest portion, with 30.8 trillion won, or 55.8% of the total. This was followed by banks at 11.5 trillion won (20.8%), securities companies at 7.3 trillion won (13.2%), mutual finance at 3.5 trillion won (6.3%), specialized credit finance companies at 2 trillion won (3.7%), and savings banks at 100 billion won (0.1%).

By region, investments in North America accounted for the largest share, totaling 33.3 trillion won or 60.5% of the total. Europe followed with 10.1 trillion won (18.3%), Asia with 3.6 trillion won (6.5%), and other or multiple regions with 8.1 trillion won (14.7%).

In terms of maturity structure, 37.5 trillion won, or 68.1% of the total investments, will mature by 2030. The amount maturing by the end of this year stands at 3.5 trillion won (6.3%).

Among the 31.9 trillion won invested by financial companies in overseas real estate, events of default (EOD) occurred in 2.06 trillion won (6.45%). EOD refers to cases where the borrower's credit risk increases, allowing the financial institution to exercise its right to recover principal and interest before the loan matures. It is essentially a type of "stop-loss" measure to prevent further losses on the investment.

While the size of EODs is on a downward trend, it is still maintaining the 2 trillion won level. The amount of EODs decreased from 2.49 trillion won at the end of March 2025, to 2.07 trillion won at the end of June, and to 2.06 trillion won at the end of September. This is attributed to financial companies proactively recognizing losses and moving to clean up bad assets.

By asset type, mixed-use facilities accounted for the largest share of EODs at 1.37 trillion won. This was followed by offices at 450 billion won, residential properties at 70 billion won, and hotels at 50 billion won.

The Financial Supervisory Service explained that the overseas commercial real estate market has generally been improving since its low point in 2023, and that the scale of overseas real estate investment by financial companies still remains within 1% of total assets, so concerns about systemic risk are not high.

The main issue is the geopolitical risk in the Middle East. If the conflict between the United States and Iran drags on, there is a risk that the shock from the Middle East could spread throughout the global financial markets. There are also growing concerns about stagflation, where inflation and economic slowdown occur simultaneously due to the aftermath of the war. In such a scenario, the overseas commercial real estate market could also face weakened investor sentiment and downward pressure on asset prices.

An official from the Financial Supervisory Service stated, "We will continue to monitor the possibility of additional risks arising from the recent situation in the Middle East, and guide financial institutions to properly recognize losses and manage risks related to overseas real estate investments."

This content was produced with the assistance of AI translation services.