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Saturday, 09 July 2011 13:51

K-REIT legislation was passed in 2001 with the introduction of the Real Estate Investment Company Act (REICA) which attempted to better deal with the issue of off-balance sheet real estate debts (CR-REITs, which were typically 5 year closed-ended, unlisted affairs, with IPOs targeted at the big local financial institutions. Hence, it was not until the clarifications and revisions contained in the 2007 Act on Administration and Promotion of Real Estate Development Business (REDBA), that the market improved as it better regulated 'collective investment vehicles' such as REITs, and made them more accessible to individual participation. The tax benefits given to real estate investment vehicles including K-REITs, REFs (Real Estate Funds), ABSs’ (Asset Backed Securities), and PFVs (Project Finance Vehicles), previously scheduled to end by 2009, have been extended to 2012. ABSs and PFVs will continue to receive a 50% deduction on acquisition tax and registration tax when they acquire a new asset. However, tax deductions for K-REITs and REFs have been decreased from 50% to 30% since 2010. There were about 40 K-REITs at end 2009.




South Korea Background The ground work for REITs in South Korea (K-REITs) was laid in 2001 by the amendment of the Real Estate Investment Company Act (REICA). The introduction of REITs was a part of the government’s reforms to create an effective scheme for troubled property companies to spin off their real assets. Despite high expectations, the K-REIT market attracted little attention from both property companies and investors due to a burdensome legal process. In 2007, the Korean Ministry of Construction and Transportation revised the REICA in an attempt to further simplify regulations governing the establishment and operation of K-REITs. Major elements of the revision included the reduction of restrictions on borrowing, initial capital requirements and lengthy approval processes. Currently, there are 3 REIT regimes in South Korea; (1) corporate restructuring (CR) REITs, self-managed (SM) REITs and manager entrusted (ME) REITs. The first listed K-REIT was the Kyobo-Meritz 1 CR-REIT, launched in April 2002. However, it has since been delisted from the Korea Stock Exchange (KRX). As of June 2012, there were 7 active K-REITs in the diversified (4), office (2) and residential (1) property sector. Despite having an early start, the K-REIT industry was still lagging behind its regional counterparts. As of June 2012, it was the smallest REIT market in Asia, with a total market capitalisation of just US$465 million, accounting for less than 0.5% of the total Asian REIT market capitalisation. The diversified sector made up the largest segmentation, representing 74% of K-REIT total market capitalization.

Source: Prof. Alex Anh Khoi Pham - University of Western Sydney: The Development of REIT Markets in Asia (1/1/2014) - Link.


Last Updated on Friday, 14 March 2014 06:36