[Exclusive] 'Garosu-gil Was Once Thriving...' IBK Investment & Securities Real Estate Fund Suffers Total Loss

Garosu-gil Real Estate Investment Fund Suffers Total Loss
Investors: "It Was High-Risk, Yet Sold as Safe"
Korea Investment & Securities to Compensate Investors for Up to 80% of Losses on Belgian Fund

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Real estate funds at home and abroad are increasingly suffering total losses. Following the Belgian office fund sold by Korea Investment & Securities, a real estate fund sold by IBK Securities has also resulted in a total loss of principal, once again putting securities firms' responsibility to protect investors under scrutiny. Investors are protesting that they were not adequately informed of the risks during the sales process, and the dispute appears to be escalating into complaints filed with financial authorities.

According to the financial investment industry on October 14, IBK Securities recently wrote off the entire investment in IGIS Professional Investment-Type Private Real Estate Investment Trust No. 149, which invested in a property on Garosu-gil in Gangnam-gu, Seoul. The fund invested approximately KRW 50 billion, including investor contributions and loans, in the Sinsa-dong area of Gangnam-gu, Seoul. The investment reportedly became difficult to recover amid a downturn in the Garosu-gil commercial district, falling asset values and difficulties in selling the property.

Investors are contesting whether the fund was sold appropriately, including by filing complaints with the Financial Supervisory Service (FSS), arguing that its risks were not adequately explained during the sales process. Some investors reportedly say they were elderly and had an investment risk profile indicating they could tolerate losses of up to 20% of their principal, yet were still recommended a high-risk fund.

IBK Securities maintains that the product was sold through proper procedures. A company representative said, "The product was sold in accordance with the relevant procedures and regulations," adding, "If clear fault on the part of the seller is established in the sales process, we may consider whether to provide compensation."

This is not the first time problems have emerged with real estate-related products sold by IBK Securities. Since the beginning of the year, six products, including real estate funds and private bonds, have collectively suffered principal losses and suspended dividend payments, prompting the FSS to launch a fact-finding investigation.

Similar cases are emerging at other securities firms. Korea Investment & Securities recently agreed to compensate all investors for up to 80% of their losses in connection with the total loss of a Belgian office real estate fund worth around KRW 90 billion. Investors claimed that the fund's stability had been emphasized at the time of sale, with claims such as "100% occupancy" and "a building leased to a Belgian government agency." The FSS launched an on-site inspection last year.

Other funds, including Hyundai Asset Management's Hyundai U-First Real Estate Investment Trust No. 30, which invested in an office property in Edinburgh, United Kingdom, and Kiwoom Asset Management's Kiwoom Heroes European Office Real Estate Investment Trusts Nos. 1 to 4, which invested in office properties in Amsterdam, the Netherlands, have seen their returns decline and are facing the risk of an event of default (EOD) after failing to sell their assets.

Industry insiders expect losses on real estate funds to continue as the property market cools and interest rates rise. The problem is that there are no clear standards for compensation after losses occur. If the availability and amount of compensation vary by seller even for losses on the same type of real estate fund, investor confusion is bound to grow. The distinction between mis-selling and ordinary investment losses also remains a central point of dispute.

Some say the real estate fund losses should not be treated as problems with individual products alone, but as a reason to review sales practices across the industry. During the period of low interest rates, the funds were marketed as products offering stable dividends, but in reality, they were high-risk products in which falling asset values and refinancing failures could lead to the total loss of principal. There are also calls for the authorities to establish clear standards for investor protection and seller accountability.

An alternative investment industry representative said, "Losses on real estate funds are difficult to explain solely by deteriorating market conditions," adding, "The extent of a seller's responsibility may depend on how thoroughly the risks were disclosed during product design and sales, and whether the product was suitable for the investor."

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