The Ministry of Land, Infrastructure and Transport has begun preparations for the introduction of the 'Korean-style REITs (Real Estate Investment Trusts).' The Korean-style REITs operate such that as the REIT supplies dwellings, the housing demanders invest in equity and then reside as tenants. If 30% of the home price is held as equity in the REIT, the remaining 70% can be paid as rent while gradually increasing the REIT equity, eliminating the need for several hundred million won in housing mortgage loans initially.
According to the Ministry of Land, Infrastructure and Transport on the 6th, the ministry plans to commission a study to explore a systematization plan for Korean-style REITs under the title 'Measures to Revitalize Housing Ownership and Rental through REITs.'
The ministry noted, 'Although the Bank of Korea proposed a supply model of privately rented dwellings using REITs to reduce household debt, diverse institutional improvements and support are necessary for an actual model to be released in the market, and we intend to conduct follow-up research.'
The 'Korean-style REITs' proposed by the Bank of Korea in November last year involve investment funds that act as deposits, resembling a reverse lease. If tenants accumulate funds to increase their REIT investment, they can reduce their rent. After the holding period, they can also expect to sell their REIT equity for capital gains.
For example, if a 1 billion won apartment in Seoul has a deposit of 100 million won and a rent of 2.5 million won for two years, when moving out, the tenants receive 100 million won now, but if the apartment price increases by 20% during this period, they will receive an additional 20% of the 100 million won investment in REITs, which totals 120 million won. This also offers the advantage of reducing various taxes and mortgage interests associated with dwelling ownership.
The key issue is how cheaply the REIT can acquire dwellings in areas where housing prices, such as in Seoul and the Seoul metropolitan area, are expected to rise steadily. Whether there is sufficient demand for long-term rentals from individuals may also be an important variable.
The industry believes that for REITs to establish a revenue structure, they must be able to receive 'sufficient rent'; however, under the current lease system, the formation of a Korean-style REIT market is seen as difficult.
Accordingly, the ministry plans to secure the business viability by either selling the supply quantity of new sites, such as the Seoripul district in Seocho-gu, Seoul, to the REITs at a discount or allowing the REITs to acquire rental housing quantities that emerge as incentives for increasing reconstruction floor area ratios.
When the REIT acquires existing, rather than newly built, dwellings, they will support investments and loans from the Housing & Urban Fund and are also considering offering priority residence rights for healthcare REIT dwellings when selling dwellings to the REIT.
Healthcare REITs supply dwellings that combine senior housing with medical and commercial facilities. Tax benefits such as acquisition tax, property tax, comprehensive real estate tax, and capital gains tax are also key elements.
A ministry official said, 'We aim to present a functioning model of Korean-style REITs by reviewing subscription, tax systems, and more,' adding that 'If significant portions of funds for purchasing dwellings can be sourced through capital rather than loans with the use of REITs, it could help lower real estate loan levels.'
In light of the judgment that the concentration of real estate loans is excessive, hindering economic growth and damaging industrial competitiveness, financial authorities are emphasizing 'equity-based housing finance.' This system allows for insufficient funds when purchasing a home to be provided as equity investment rather than a loan from the public sector. For instance, the housing purchaser and the Housing Finance Corporation each bear 50% of the apartment price, splitting equity in half, and when selling the apartment, they again share half of the selling price.