The government is considering a plan to postpone regular inspections for Real Estate Investment Trusts (REITs) that excel in internal control and Value up efforts. The intention is to provide incentives for REITs that protect investors to encourage voluntary internal control enhancement and corporate value improvement. The regulation on REITs is focused on post-event punishment, thus lacking adequate preemptive investor protection against incidents such as embezzlement or fraud.
According to the Ministry of Land, Infrastructure and Transport on the 8th, the ministry is looking into delaying regular inspections for REITs that excel in internal control aspects such as accident prevention and investor protection. A ministry official noted, "Just as we defer tax audits for exemplary taxpayers, we are reviewing a plan to postpone regular inspections for those that are managing internal controls well."
REITs are real estate investment companies that pool funds from investors to invest in high-value, quality real estate that is difficult to invest in individually, then distribute profits earned from rent or sale gains as dividends. As of the first quarter of this year, the assets under management of REITs amount to 106.5 trillion won.
The ministry's strengthening of internal controls for REITs is due to the increase in financial accidents alongside the growth of the REITs industry. Recently, an incident occurred at 'Mastan 11', a REIT created by Mastan Investment Management, where a company that is the parent of the executing company and asset management company illegally received rent and a security deposit of 5 billion won into a separate account. STAR SM REIT also faced a two-month business suspension last month due to embezzlement by an executive.
To prevent accidents, the ministry will provide incentives to strengthen the internal controls of REITs while also enhancing the preemptive supervision system for REITs. The goal is to improve the supervisory system, which has been reactive, addressing issues only after investor harm has occurred, by focusing on genuine investor protection. To this end, the ministry plans to conduct research on advanced supervision techniques for REITs to establish a preventive monitoring system that can detect the operational risks associated with REITs' investment management and operational status.
In particular, the ministry is pursuing measures to activate the REITs industry by relaxing excessive regulatory levels. Currently, REITs have over 50 disclosure and reporting obligations, and even if they do not intentionally violate these, they can still face criminal punishment. According to Article 52 of the Real Estate Investment Company Act, those who fail to disclose investment reports or falsely disclose them can be punished with up to one year in prison or a fine of up to 10 million won.
A ministry official explained, "In some cases, a first-year employee of a REIT failed to disclose one item and became subject to criminal punishment. Because the law establishes criminal punishment, this leads to unavoidable criminal charges for disclosure omissions. Yet, when it goes to investigative agencies, it is regarded as a trivial case, resulting in no charges; however, the burden on employees during the accusation process is very high." The official added, "Therefore, we aim to eliminate unnecessary items and make a qualitative assessment of prior investor protection and efforts to enhance the value of REITs."