Chairman Hwang Young-key of the Korea Financial Investment Association.

South Korean institutions and individual investors increased their holdings in overseas real estate assets over the past several years as part of moves to make up for losses amid falling profits from traditional domestic equities and bonds. The moves have raised expectations that overseas real estate can be a source of alternative investments for local institutions at a time when they have been struggling to generate profit amid low growth and low rates at home. 

Chairman Hwang Young-key of Korea Financial Investment Association (KOFIA) delivered a speech on Aug. 10 at the Leaders Hall of the Financial Training Institute in Yeouido, Seoul,  on the global investment environment focused on the global economic conditions in the days ahead. He was there as the chairman of the Korea Investor Education Council.

South Korea's central bank held its policy rate at an all-time low of 1.25 percent in a move to strengthen growth for Asia's fourth-largest economy in early September.

Overseas property-based funds managed by South Korean institutions came to 11.27 trillion won ($110 billion) as of the end of last year, up from 4.93 trillion won in 2013, according to the Korea Financial Investment Association.

The funds also increased to 16.84 trillion won as of the end of August.

Mirae Asset Global Investments Co.  signed a deal to acquire four State Farm office buildings in Texas from a U.S. real estate company for 950 billion won in its latest investment moves. Additionally, the company has invested about 5.2 trillion won in other overseas buildings and hotels since 2006 to secure a variety of growth drivers.

The four buildings in Texas have been rented out to State Farm Mutual Automobile Insurance Company, the largest auto insurer in the U.S., on a 21-year lease.

A source familiar with the deal said the long-term lease appears to be a stable deal, even with a possible rate hike coming in the U.S., and said the annual return of 6 percent is high.

"This could be the last chance to acquire good assets as Chinese money is flooding global asset markets," he said.

He also said the decision to invest in the U.S. appears to have been affected by the belief that U.S. assets could be more stable than assets in South Korea, should another global financial crisis occur.

Aside from four State Farm office buildings in Texas, Mirae Asset Global Investments invested about 5.2 trillion won in other overseas buildings and hotels since 2006 to secure a variety of growth engines.

South Korea's national pension fund, the world's third largest with more than 520 trillion won in assets, also spent a total of 33.9 trillion won on overseas alternative investments from 2011 to March this year, with property accounting for 16.4 trillion won, or 48.4 percent, of the total.

Some small brokerage firms are also taking a close look at real estate markets in foreign countries for profit potential.

"I think that increasing investments in alternative assets such as overseas real estate or airplanes are a step in the right direction as it is difficult to generate profits in traditional investment markets such as stocks and bonds," a top official of a small brokerage firm said.

Some critics have voiced concerns over investments in overseas real estate, however, noting that institutions may have bought properties at higher prices amid speculation that the U.S. could raise interest rates.

Last month, Federal Reserve Chair Janet Yellen said the case for an increase in the federal funds rate has strengthened in recent months, citing continued solid performance of the labor market and the outlook for economic activity and inflation. 

She did not provide any specific time frame for a possible rate hike.

A rate hike could lower returns on alternative assets like real estate, experts said, because it would strengthen the American dollar.

A view of the building in Seoul where KOFIA has offices.(Photos: KOFIA)