Reits

Author: | Published: 1 Aug 2007
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Lee & Ko

Address

Seoul

Telephone

+82 2 772 4000

Fax

+82 2 772 4001

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.