The introduction of project REITs is expected to activate responsible operational development, fostering a comprehensive real estate company that engages in development, operation, and finance, thus creating a virtuous cycle where this company uses REITs to grow the REIT market.
On the afternoon of the 21st, the Ministry of Land, Infrastructure and Transport held a briefing for the real estate industry at the Korea Financial Investment Association in Yeongdeungpo-gu, Seoul, to introduce various incentives, including the background, key details, and effects of the project REITs, as well as tax and regulatory exceptions related to real estate development projects using the REIT method.
Real Estate Investment Trusts (REITs) are an indirect investment structure that gathers funds from numerous investors to invest in real estate and distributes rental and operational revenue as dividends.
Recently, the scope of REIT utilization has expanded with amendments to the Real Estate Investment Company Act. Project REITs are capable of real estate development, leasing, and operation, making profitability easier to secure compared to typical REITs. They can be established through registration instead of approval, significantly reducing the approval period that previously took more than a year. The average equity capital ratio is also higher than that of PF method developments, making it a stable development option.
The government plans to provide various incentives to activate project REITs. Starting in the second half of this year, some prime land within public housing sites, such as the third phase of new towns, will be compulsorily supplied to REITs that engage in responsible operational development.
Additionally, through amendments to the Special Tax Treatment Limitation Act, a system will be introduced that defers corporate taxes, which are immediately imposed when landowners contribute vacant land in urban areas in-kind, until the point of profit realization.
The Ministry of Land, Infrastructure and Transport is also considering integrating regional coexistence REITs that share a portion of development profits with local residents. The regional coexistence REITs are designed so that local residents can participate in the bidding for specific regional development projects. It is expected that by allowing local residents to directly invest in development projects and share revenue, community engagement and participation in regional development can be enhanced.
Hwang Kyu-o, a Deputy Director at the Ministry of Land, Infrastructure and Transport, noted, "The introduction of project REITs can encourage responsible management by project implementers rather than simple sales," adding, "The activation of responsible management can lead to the growth of comprehensive real estate companies and REITs, and broaden opportunities for public participation in quality projects."
The PF management plan was also disclosed that day. The current draft of the Real Estate Development Project Management Act has completed government transmission and is expected to be announced within ten days. The integrated management law for PFs includes provisions for the government to directly establish evaluation criteria for project feasibility and designate evaluation agencies to carry out these assessments. Until now, the financial sector has assessed PF loans based on individual criteria, but moving forward, the government will shift to a structure that checks risk factors from the project's outset.
In order to quell market concerns that government-led assessments of PF project viability may delay development, the Ministry of Land, Infrastructure and Transport plans to designate evaluation agencies as much as possible. At the event, a representative from a construction company stated, "PF project sites are varied, and the nature of real estate development projects differs. I am concerned that if the government evaluates PF project viability, it will take considerable time." In response, the ministry said, "We will ensure that this does not act as a regulation," adding, "We plan to designate as many credit rating agencies, appraisal companies, and accounting firms as possible across all sectors."
Kim Seung-beom, the head of the real estate investment system division at the Ministry of Land, Infrastructure and Transport, stated, "Feasibility assessments will provide guidelines and will not serve as a hurdle," and noted, "We are negotiating with the Ministry of Economy and Finance to ensure the tax deferral on in-kind contributions is applied for as long as possible so that landowners can receive dividends for an extended period."
Meanwhile, the briefing, originally prepared for 300 people, saw such a high level of industry interest that it had to be conducted in two sessions due to registration exceeding 600 participants.