Samsung Group sold off 2 trillion won ($ 1.7 billion) property assets last year and plans to continue unloading unnecessary office buildings this year, betting on stagnation in the commercial real estate amid increasing interest rates.

According to sources in the investment bank (IB) industry Thursday, Samsung Group has earned 2.2 trillion won from sale of office buildings in Seoul last year. It sold 11 high-rise buildings including Samsung Life Insurance’s Taepyung-ro headquarter building (571.7 billion won) and Samsung Fire & Marine Insurance’s head office building located in Euljiro (439 billion won) which were acquired by South Korea’s Booyoung Group, Jongno Tower (384 billion won), Prime Tower (170.8 billion won) and Samsung Financial Plaza (150.9 billion won).

An unnamed official at a financial unit of Samsung Group said the group has been selling off non-core real estate assets as part of efforts to further enhance its financial soundness before a new global insurance standard, International Financial Reporting Standards (IFRS) 17 that requires insurers to report their debt based on market value, not book value, takes effect in 2021. The Korea’s largest conglomerate owns both life and non-life insurance arms.

Market observers also see the move in the context of changes in the real estate market.

Prices of commercial buildings in Seoul has surged since 2010 as local institutional investors seeking higher yields after the 2008 financial crisis rushed to buy office buildings. But rents have been on the decrease with office vacancy rate rising due to the slowing local economy. In addition, returns from domestic commercial office building investment have been falling due to rises in borrowing costs.

While disposing its local office buildings, Samsung Group has added real estate assets in foreign countries. Last year, the group’s financial units including Samsung Life Insurance, Samsung Fire & Marine Insurance and Samsung Securities joined hands with Samsung SRA Asset Management Co. to form the real estate fund that acquired Germany’s Commerzbank Tower located in Frankfurt, the tallest building in Europe, at around 900 billion won and the So Ouest office tower in northwestern Paris at 400 billion won last year.

The group is expected to put its mid- and small-sized office buildings located in the metropolitan area including Samsung Life Daechi Tower and Songpa Building up for sale.

By Kang Doo-soon and Song Gwang-sup

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