The amended Real Estate Investment Trusts Act (the Reits
Act) was passed during the parliamentary plenary session held
on June 20 2007. The amendments to the Reits Act will be
effective from October 2007.
The purpose of the amendments to the Reits Act is to relax
the complicated and convoluted procedures and requirements for
setting up and operating Reits in Korea, boosting indirect real
estate investments and adding depth and sophistication to the
Korean Reits market in general.
Before the amendments, approval from the Ministry of
Construction and Transportation (MOCT) was required to
establish a Reit. Under the amended Reits Act, however, this
approval is no longer needed. Instead, business approval from
the MOCT will need to be obtained before inviting shareholders
and making real estate investments to ensure adequate
protection of shareholders of Reits.
The amended Reits Act also relaxes the requirements for the
establishment of Reits by reducing the requisite minimum
paid-in capital from W25 billion ($27 million) to W1 billion,
provided that Reits bring up their paid-in capital to W10
billion by the end of six months from the date of business
approval from the MOCT.
Before the amendments, Reits were only allowed to be
established through public offering of new stocks, with at
least 30% of the total stocks issued at the time of the
establishment put up for public offering. The amendments to the
Reits Act allow Reits to be established through incorporation
by founders, provided that the Reits ensure that at least 30%
of their total stocks are subscribed by the public by the end
of six months from the date of business approval from the MOCT
(unless 30% or more of the total stocks are subscribed by the
National Pension Service or other shareholders specifically
designated by the Presidential Decree of the Reits Act).
The amendments to the Reits Act allow the establishment of
real estate development Reits, which specialize in investments
in greenfield projects.
Before the amendments, Reits were not allowed to borrow
funds or issue bonds in an amount greater than 200% of the
equity capital. The amended Reits Act relaxes this restriction
by permitting up to 1000% of exceptional borrowing upon special
resolution of a shareholders' meeting of Reits.