1.

Abolishment of Preliminary Authorization Procedure for Establishment of Asset Management Companies

Pursuant to the Amended REIT Act, the preliminary authorization procedure that was previously required for the registration of an asset management company for the REIT will be abolished effective as of August 21, 2024. As a result of such change, it is expected that the time and effort required to obtain the previously required authorization will be relaxed.
 

2.

Permission to Raise Funds for Securitization of Industrial Complexes via Sale and Leaseback

Under the amended Industrial Cluster Development and Factory Establishment Act (the “Amended Industrial Complex Act”) which was promulgated on January 9, 2024 and became effective as of July 10, 2024, funds may be raised through real-estate financing within industrial complexes located outside of the Seoul Metropolitan Area by way of sale and leaseback as a way of project financing. The proposed Enforcement Decree of the Amended Industrial Complex Act, announced on February 7, 2024, specifies financing by way of sale and leaseback of factories to REITs as one of the permissible financing methods. If the Enforcement Decree is amended as proposed, it is expected that an owner of factories within industrial complexes located outside of the Seoul Metropolitan Area could sell the factories to REITs and utilize the sale and leaseback method to raise funds.
 

3.

Exclusion of Valuation Loss When Calculating Dividend Limit

Under the Amended REIT Act, as of February 20, 2024, losses from asset valuation are not considered in calculating the dividend limit. This change is expected to resolve the issue that arose from the difficulty in paying dividends when real estate value decreases.
 

4.

Amendments to Disposal Restrictions of Shares in Land Compensation REITs

Landowners whose land was expropriated for public projects in exchange for certain rights to receive compensation in the form of land (the “Land Compensation Rights”), can make in-kind contributions of those Land Compensation Rights to Land Compensation REITs (which are created to carry out development projects using land contributed in-kind), in exchange for shares in said Land Compensation REITs. The Amended REIT Act allows landowners to dispose of their shares in Land Compensation REITs starting from one year after the date of the in-kind contribution. This has made it easier for such landowners to cash out the Land Compensation Rights through early in-kind contributions of said Land Compensation Rights into Land Compensation REITs.
 

5.

Relaxation of Standards for Recognition of Real Estate Corporations

After the minimum capital preparation period expires, REITs must ensure that (i) at least 80% of their total assets consist of real estate, real estate-related securities and cash, and (ii) at least 70% of their total assets consist of “real estate” (including buildings under construction).

Regarding point (ii) mentioned above, REITs were previously recognized as having invested in “real estate” only when they acquired more than 50% of all of the issued and outstanding shares of a corporation or association where at least 80% of total assets were invested in real estate development projects. However, Article 27 of the Enforcement Decree of the REIT Act (amended on February 13, 2024 and effective as of February 17, 2024) now allows REITs to be recognized as having invested in “real estate” if they acquire more than 20% of all of the issued and outstanding shares of a corporation or association where at least 80% of total assets are invested in real estate development projects.

Accordingly, REITs will be recognized as having invested in “real estate” if they hold at least 20% of minority interest in a corporation or association involved in a real estate development project.