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Newsletter | May 2014, Issue 2 |
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REAL ESTATE |
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Amendments to Enforcement Decrees of Real Estate Investment Trust Act |
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The Real Estate Investment Trust Act was amended (and such amendment was promulgated on July 16, 2013 and became effective on January 17, 2014), to require an appraisal of the target real estate at the time a business license is issued and introduce an eligibility review system with respect to major investors in self-managed real estate investment trust companies so that security is provided to real estate investments by real estate investment trust companies (“REITs”). Certain amendments to the Enforcement Decree of the Real Estate Investment Trust Act have also been enforced since January 17, 2014 (“Amendments”) to provide the necessary details of the amended Real Estate Investment Trust Act. |
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Key points to the Amendments are summarized below. |
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At the time of issuing a business license for a REIT, the Korea Appraisal Board and the Association of Property Appraisers are designated as the institutions which may recommend an appraisal business operator to provide an appraisal of the target real property of such REIT. The Minister of Land, Infrastructure and Transport may request the Korea Appraisal Board to conduct a review, if necessary, to confirm the reasonableness and validity of the relevant business plan. |
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For reviewing the eligibility of a major shareholder of self-managed REIT (i.e., shareholder owning 5% or more of equity), the Amendment provides for detailed requirements for, among others, financial structure, liabilities-to-equity ratio and sources for loans. |
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Entities which manage/operate deposited funds and insurance reserves of post offices will not be subject to restrictions on public offerings of shares of REITs (i.e., 30% or more of the total shares should be offered to the general public) and the ownership restriction on a shareholder and its specially related parties (i.e., 30% or less in the case of self-managed REITs and 40% or less in the case of consigned-management REITs), thereby promoting investments in REITs. |
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