MERITZ Securities will acquire unsold dwellings in local areas next month, establish a corporate restructuring real estate investment company (CR REITs), and apply for a business registration with the Ministry of Land, Infrastructure and Transport. As the number of unsold dwellings nationwide exceeds 70,000, the issue of unsold dwellings is deepening, and CR REITs are also becoming more active. The Ministry of Land, Infrastructure and Transport has also begun supporting the early launch of CR REITs by conducting appraisals on unsold dwellings before structuring CR REITs through a rapid prior consulting system.
According to the government and investment banking (IB) industry on the 18th, it has been confirmed that MERITZ Securities plans to establish a CR REIT that includes APT.s in Jeju City, Yangsan City, and Gyeongju City in March and to register with the Ministry of Land, Infrastructure and Transport.
CR REITs collect funds from various investors to purchase unsold dwellings, operating them as rentals, and when the real estate market recovers, they sell the properties to generate revenue. The Ministry of Land, Infrastructure and Transport revived CR REITs for the first time in 10 years as part of measures to resolve unsold dwellings in regional areas last March.
Although the Ministry of Land, Infrastructure and Transport revived the system, CR REITs have not been launched for nearly a year, raising questions about their effectiveness. In September and October last year, KB Real Estate Trust and JB Asset Management established CR REITs that included unsold APT.s in Gwangyang, Jeollanam-do, and applied for business registration, but the registration has not yet been completed. It is reported that the registration has been postponed due to the conclusion of negotiations with the construction company that built the APT.s and the purchase price.
However, the atmosphere for establishing CR REITs has changed since this year. As the number of unsold dwellings has rapidly increased and project financing (PF) restructuring has begun in earnest, inquiries from construction companies about CR REITs have surged. Recently, Hyundai E&C is reported to have sent out a request for proposal (RFP) for the establishment of CR REITs to handle unsold dwellings.
An IB official said, "The demand for CR REITs from construction companies has significantly increased this year," and noted, "Last year, there was a mood among construction companies to do more sales to seize opportunities, but they have realized that this is not feasible." The official added, "As the financial authorities issued guidelines to auction off properties that were not repaid at the beginning of this year and that were extended, there is no longer a situation where they can wait to process the inventory of unsold dwellings," stating that construction companies are currently making decisions regarding CR REITs.
The Ministry of Land, Infrastructure and Transport is also introducing a rapid prior consulting system at the Housing and Urban Guarantee Corporation (HUG) to support the early launch of CR REITs, conducting appraisals in advance when issuing "mortgage guarantees." The Ministry of Land, Infrastructure and Transport will also issue mortgage guarantees for unsold dwellings in order to enhance the feasibility of CR REITs. In this case, as loan interest rates decrease, cost of financing will be reduced, which will help establish CR REITs.
Previously, CR REITs purchased unsold dwellings at high interest rates and applied for mortgage guarantees from HUG for refinancing. However, the Ministry of Land, Infrastructure and Transport has recently allowed for prior appraisals on unsold dwellings, enabling the structure of CR REITs to be planned in advance. It has been reported that through this prior consulting system, 20 applications (3,800 dwellings) have been received from MERITZ Securities, Kyobo Securities, and others, and appraisals were conducted last week.
A Ministry of Land, Infrastructure and Transport official said, "If the appraisal results come out in advance due to the prior consulting, the uncertainties regarding how much principal and subordinate loans each construction company can repay will be eliminated, which actually helps in structuring CR REITs."