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Newsletter | February 2016, Issue 1
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REAL ESTATE & CONSTRUCTION
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Korean National Assembly Adopts Relaxed Measures to the Real Estate Investment Trust Act
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On December 28, 2015, the National Assembly adopted certain amendments (the “Amendments”) to the Real Estate Investment Trust Act (the “REIT Act”). The Amendments are aimed at facilitating the use of real estate investment trust companies (“REITs”).
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The Amendments are scheduled to become effective on July 20, 2016. Key measures include:
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1. Minimum Paid-In Capital of REITs Lowered
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Under the current REIT Act, self-managed REITs are required to have a minimum paid-in capital of KRW 1 billion at establishment. Third-party managed REITs and corporate-restructuring purpose REITs (“CR-REITs”) are required to have a minimum paid-in capital of KRW 500 million at establishment.
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The Amendments will lower entry barriers for establishing REITs. Specifically, for self-managed REITs, the required minimum paid-in capital will be reduced to KRW 500 million. For third-party managed REITs and CR-REITs, to KRW 300 million.
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2. Requirement for REITs to Commence Business Eased
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Under the current REIT Act, all REITs – regardless of their types – are required to obtain business approval from the Korean Ministry of Land, Infrastructure and Transport (the “MLIT”) prior to commencing their business.
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However, under the Amendments, third-party managed REITs or CR-REITs that meet certain conditions24 will simply be required to be register with the MLIT.
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3. Restriction on Establishment of Subsidiaries Relaxed
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Except in certain cases, the current REIT Act prohibits REITs from holding more than 10% of the shares of another company.
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The Amendments add to such exception by allowing REITs to acquire the shares of a company that leases real property25 owned by such a REIT and operates business related to management of real property, tourism accommodation business or another purpose enumerated in the Presidential Decrees of the REIT Act.
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E.g., 30% or less of the REIT’s assets were invested in real estate development assets, and in the case of a third-party managed REIT, 30% or more of its shares were acquired by the National Pension Plan and/or one of the other specifically enumerated pension plan type shareholders.
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Or real property-related rights, such as superficies rights, easements, and “cheonse”-rights.
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