To respond to the downturn in REITs (real estate investment companies), the government has decided to improve REITs’ ability to respond to the market and improve unreasonable regulations.
Accordingly, even if a REIT owns more than 20% of a real estate corporation’s stake in the future, the stake will be recognized as a real estate asset. Currently, a company must own more than 50% of the shares of a real estate corporation to be recognized as an investment asset.
In addition, it plans to support the diversification of REITs, such as healthcare REITs, which have senior housing and nursing facilities as assets.
The Ministry of Land, Infrastructure and Transport announced on the 5th following deliberation by the Real Estate Service Industry Policy Committee the ‘REITs System Improvement Plan’ including these contents.
REITs are a typical medium-risk, medium-return product for the general public to invest in high-quality real estate with a small amount of money and earn investment returns. there is.
However, market conditions are deteriorating due to difficulties in raising funds for REITs due to the recent sharp rise in interest rates and waning investor interest.
Accordingly, the Ministry of Land, Infrastructure and Transport decided to support the development of a new investment model first.
REIT investment assets have been concentrated in housing (51%) and offices (26%). Accordingly, if the real estate market in a specific sector is depressed, there is a concern that the REITs market will be depressed overall.
In the future, it seeks diversification by supporting healthcare REITs, home-buying REITs, and REIT-type urban complex development projects.
In addition, it plans to allow the issuance of commercial paper (CP) to support the smooth financing of REITs.
Currently, only financial loans and corporate bond issuance are allowed for REIT financing through borrowing. Commercial paper with a maturity of less than one year does not require filing a securities report, making it easier to raise funds than corporate bonds.
However, to prevent indiscriminate issuance, it is stipulated that prior consultation with the Ministry of Land, Infrastructure and Transport is required before issuance.
The scope for recognition of excess dividends using depreciation is expanded.
Currently, only when REITs directly invest in real estate, excess dividends for depreciation are allowed, so indirect investment REITs that invest in real estate corporations have had a problem with reduced dividends.
Accordingly, it was decided to allow excess dividends using depreciation expenses in a limited manner, taking into account the shareholding ratio and investment structure.
REITs’ obligation to submit due diligence reports is relaxed.
Currently, when REITs acquire or sell real estate, they are required to submit a due diligence report that includes the current status and price of the real estate.
In addition, the obligation to submit due diligence reports for beneficiary certificates is eased. For non-real estate fund beneficiary certificates, etc., it is improved to apply regulations suitable for the nature of the asset, such as replacing it with a fair value appraisal.
Among REIT assets, the scope of recognition as real estate will be expanded.
Currently, REITs are recognized as real estate only when they own more than 50% of the shares in a real estate corporation, which has been pointed out as hindering REITs from expanding their portfolio.
Accordingly, the Ministry of Land, Transport and Maritime Affairs decided to recognize the investment stake as real estate even if it owns more than 20% of the stake in the real estate corporation.
In addition, the preliminary authorization procedure for the establishment of an asset management company (AMC) will be abolished. It was decided to replace the preliminary approval with a preliminary review by private organizations such as the REITs Association.
In the meantime, when establishing AMC, it has been reviewed in two stages, preliminary approval and establishment approval, but inefficiency has occurred, such as virtually identical requirements being reviewed at each stage.
Depositors can invest in kind in Daetoritz and dispose of their stocks one to two years later.
Now, since the stocks received following investing in kind in Daetoritz can be disposed of following 3 years from the date of the compensation contract, there is no incentive for the rewarder to invest in REITs early, and as a result, securing investment assets for Daetoritz has been delayed.
In addition, the Ministry of Land, Transport and Maritime Affairs decided to drastically reorganize the REITs and AMC inspection systems during the first half of the year according to the three principles of guidance, substance, selection, and concentration.
In the meantime, due to similar and repeated inspections on real estate investment companies, there have been problems with increased inspection burden on companies and reduced work efficiency due to duplicate inspections.
In addition, the regulations for revoking licenses for REITs and asset management companies (AMCs) will be relaxed so that they can decide whether to revoke licenses by considering the degree of intention or negligence.
Officialize the ‘REIT Disposition Advisory Committee’ to improve rigid punishment.
Currently, in order to prevent uniform punishment for violations of REITs and AMC, the ‘Reitz Disposition Advisory Committee’ composed of private experts receives advice on the seriousness of violations and notifies the investigative agency of criminal charges.
However, since the committee is being formed and operated as needed, it was decided to institutionalize it by preparing the grounds for establishment in administrative rules for policy consistency.
In addition, it plans to reorganize the ‘REITs Information System’, which is being operated to provide REITs information to the public, to provide integrated financial information and stock price information and to upgrade the system.
Nam Yeong-woo, director general of land policy at the Ministry of Land, Infrastructure and Transport, said, “We will promote timely regulatory improvements to help the REITs market, which is suffering from high interest rates and the real estate market slump, be maintained soundly.”
Inquiries: Ministry of Land, Infrastructure and Transport, Land Policy Division, Real Estate Investment System Division 044-201-3417
