Morgan Stanley will buy a Seoul office building from South Korea’s Daewoo Engineering and Construction Co for US$1 billion in the Wall Street bank’s latest big deal in the booming Asian property market.

Morgan Stanley has joined a slew of foreign investors buying Asian property assets, which are yielding stable returns on the back of tight supply in a region which has been chalking up blistering economic growth.

The US bank said in June it has raised the biggest property fund ever, an US$8 billion warchest, and earmarked 60 per cent of the money for Asian deals, including Japan, China and India.

In South Korea’s biggest deal for a single office building, Morgan Stanley’s real estate investment fund, AHI Holding BV, has signed a 960 billion won (S$1.58 billion) contract with Daewoo, the South Korean builder said yesterday.

According to property service firm Jones Lang LaSalle, South Korean office building prices rose 20-25 per cent in the past year.

The former head office of the now-defunct Daewoo Group has been up for sale by the new owner of Daewoo Engineering, Kumho Asiana Group, to pay down debt and improve financial conditions of the builder.

The property fund beat other bidders including Australia’s Macquarie Bank Ltd and South Korea’s Kookmin Bank in the race for the Daewoo building, located in the heart of downtown Seoul.

Morgan Stanley’s recent big deals include the US$3.9 billion acquisition of Australia’s Investa Properties Ltd in May and the US$2.4 billion purchase of hotels and two property management units from Japanese airline All Nippon Airways in April.

An analyst of a foreign property advisory firm said conditions in South Korea’s commercial buildings market will continue to favour owners over the next two to three years, because of limited supply and lower vacancy ratios.

‘Limited supply will continue until 2010 before supply turns up, now that construction companies started building office buildings,’ he said, asking not to be named.

The Government of Singapore Investment Corp (GIC) broke ground for Korean property investment as an institutional investor, when it bought Seoul Finance Center for 355 billion won in 2000.

Now the building, located in the capital’s financial hub, houses a number of global banks and brokerages in central Seoul, including Merrill Lynch and asset manager Fidelity.

GIC also bought Star Tower building from US private equity house Lone Star for a reported 900 billion won in 2004. Morgan Stanley could not immediately be reached for comment.

Land prices in Seoul and its outskirts on average have risen 15-20 per cent a year over the past three years, according to construction ministry data.

Source: The Business Times, 10 July 2007