Reform of the system encompassing real estate development and overall operations will be implemented starting in the second half of the year. The revised Real Estate Investment Company Act and the proposed Real Estate Development Project Management Act passed the National Assembly on the 1st and will take effect six months after promulgation. Real Estate Investment Trusts (REITs) gather funds from multiple investors to invest in real estate and distribute indirect investments through revenue and dividends from rental and operational profits. This revision is characterized by the expansion of the utilization range of REITs up to the development stage.
According to the government on the 21st, the Ministry of Land, Infrastructure and Transport will hold an industry briefing the same day on the proposed revision of the Real Estate Investment Company Act (REITs Act) and the proposed enactment of the Real Estate Development Project Management Act (PF Act). The number of applicants for the briefing has exceeded 600, and the Ministry is considering a second briefing.
The purpose of this briefing is to gather industry opinions before refining the subordinate enforcement decrees and regulations. A Ministry official noted, "Various stakeholders, including construction companies, financial institutions, law firms, and local public corporations, have shown interest," and added, "There is a high level of industry attention as it is a new framework that can integrate development and operations in one structure."
This legal amendment is significant as it represents the first attempt at structural reform intended to complement the high-risk PF structure highlighted after the Legoland incident, rather than just simple institutional refinement. The debt default incident at the Gangwon Development Corporation at the end of 2022 shook the confidence of the entire PF market. Following this, the rise in interest rates and soaring costs of financing coincided, pushing PF business sites, which relied on sales profits with only 2–5% of equity capital, to the brink of bankruptcy. The government stated, "We will move away from PF risk management focused on post-structural reorganization and secure structural stability from the beginning."
The core of the revised REITs Act is the project REITs system. During the development phase, rapid decision-making is possible like a PFV, and after completion, it can be transformed into a public REIT to perform operations and dividends within one structure. It will be operated in a permanent company form without an expiration system, and a disclosure and supervision system will be applied after a certain point in time. It is characterized by a maximum borrowing capacity of up to 10 times the equity capital, which provides greater financial soundness compared to the existing PFV, with an average equity capital ratio of about 38%.
The proposed amendment includes a 'regional coexistence REITs' clause that grants priority subscription rights to local residents. By limiting public offerings to specific regions, local public institutions such as local corporations can participate as shareholders to share development profits. In particular, there is hope that project REITs and regional coexistence REITs can be utilized together in key sites such as new town transportation hubs and GTX transportation hubs.
The establishment of the PF Act will introduce a system that manages the entire development process according to government standards, including feasibility assessments, coordination of permits, and financing. In the past, PF loans were assessed based on criteria from individual financial institutions, but going forward, the Ministry of Land, Infrastructure and Transport will establish assessment criteria and designate specialized evaluation agencies to carry them out. The 'PF Adjustment Committee,' which will coordinate large-scale development projects where conflicts among stakeholders have been recurring, will also be institutionalized.
In the industry, expectations and cautious views are mixed. A representative from a construction company said, "In the past, development REITs had strict requirements, and the public offering process was complicated, which meant that most projects were carried out as PFVs; this time, it has created an opportunity to establish a business strategy by formalizing a structure that encompasses both development and operations." Local corporations also stated that they have a strong interest in securing future rental revenue using the REITs structure.
On the other hand, some views are skeptical. A representative from a developer commented, "While the legal foundation for project REITs has been established, actual financing must still be handled by the private sector," and added, "Although the improved structure may help attract investment, it will be difficult to revive investor sentiment through the system alone." Another representative also pointed out, "While CR REITs and public-supported private rental REITs have been introduced, they have only had short-term effects and did not resolve the fundamental issues of the PF crisis," highlighting the need for more fundamental approaches to restore market confidence.