The Ministry of Construction and Transportation (MOCT) in Korea announced the proposed amendments to the existing Real Estate Investment Company Law (Reits Law) on June 13 2006. The main purpose of the amendment is to streamline the process of establishing a Reit and to relax regulations on its business operations in order to reinvigorate indirect investments in real estate in Korea. If the amendments are approved by the National Assembly, it is expected that they will be effective as of 2007. Some of the main terms of the amendments are as follows:
- The promoters of a Reit can establish themselves with an initial capital of W1 billion ($1.06 million) without pre-approval of the Reit by MOCT. The approval of MOCT will be required at the time of a public offering instead.
- The minimum capital of a Reit (upon approval of MOCT regarding its public offering above) is reduced to W10 billion (instead of W25 billion) in order to permit small to medium-scale investments in real estate.
- In terms of calculation of the minimum real estate retention ratio (which basically means the minimum ratio of real estate and/or real estate-related assets to the total assets), the share capital will be excluded from the total assets for a period of two years from the date of approval of MOCT on its public offering.
- The development business no longer requires a Reit to be listed in a securities exchange and to invest up to 30% of its total assets and can be carried out in accordance with shareholders' resolutions.
- It is possible for a Reit to increase the limit on borrowing or issuance of bonds (twice the amount of the shareholder's equity) by way of shareholders' special resolutions.