The corporate restructuring real estate investment company (CR REITs), which purchases unsold apartments after completion in Yangsan, South Gyeongsang Province, and Gwangyang, South Jeolla Province, has completed its registration. Following the launch of the first CR REITs in April, the second and third CR REITs have been registered in succession after four months.
There were expectations that the real estate market would revive, but until last year, it seemed that the activation of CR REITs was distant. However, as the recovery pace of the local real estate market has been slow, businesses that can no longer hold onto unsold properties are handing over unsold apartments to CR REITs to secure liquidity.
In particular, with only five months left to receive benefits such as exemption from acquisition tax provided by the government, it is expected that more businesses will try to resolve unsold properties through CR REITs.
According to the Ministry of Land, Infrastructure and Transport, the third CR REIT operated by JB and SK completed its registration process on the 4th and has begun purchasing unsold properties in the provinces. The third CR REIT will acquire 265 of the 405 apartments located in Yangsan, South Gyeongsang Province.
The following day, on the 5th, JB's first CR REIT completed its registration with the Ministry of Land, Infrastructure and Transport. After applying for registration last October, it took approximately 10 months to finalize the registration process. This CR REIT will operate by purchasing 275 of the unsold 332 apartments located in Gwangyang, South Jeolla Province.
CR REITs pool funds from various investors to acquire unsold dwellings for rental operations, and when the real estate market recovers, they sell these properties to generate revenue.
The Ministry of Land, Infrastructure and Transport revived the CR REITs system, which had not been in operation for ten years, as the issue of unsold properties that could not be sold even after completion became severe in March of last year.
However, it was not until more than a year after the system was introduced that the first CR REIT was born. In April of this year, the second CR REIT operated by JB completed its registration and acquired about 300 unsold apartments in Daegu's Suseong District.
The reason the CR REITs system has not been operating effectively is due to the expectations of a recovery in the real estate market stemming from interest rate cuts and other factors until last year. If the construction market recovers, businesses do not have to sell unsold dwellings to CR REITs at low prices. Accordingly, CR REITs, which aim to acquire unsold dwellings as cheaply as possible to enhance profitability, found it difficult to coordinate opinions with construction companies regarding sale prices.
As the second half of this year approaches, a trend has been detected where construction businesses are seeking to resolve unsold property issues using CR REITs. With strong lending regulations being introduced, the housing market, which seemed to be reviving mainly in the metropolitan area during the first half of the year, is once again cooling down. Construction businesses, which can no longer hold onto unsold dwellings, are looking to sell them to CR REITs to secure liquidity.
Particularly, the fact that tax benefits applicable to CR REITs will end by the end of this year is another reason why construction businesses are hastening negotiations with CR REITs. The Ministry of Land, Infrastructure and Transport will provide tax benefits such as exemption from acquisition tax, which reaches 12%, and exemption from the comprehensive real estate tax for five years until the end of the year. Once these tax benefits expire, CR REITs will lose the incentive to acquire unsold dwellings in the provinces while paying high taxes. Ultimately, construction businesses will find themselves unable to resolve unsold properties through CR REITs once this year passes.
The Ministry of Land, Infrastructure and Transport predicts that the cumulative number of unsold dwellings purchased through CR REITs will reach 2,000 by the end of this month. The scale of unsold purchases by CR REITs is expected to increase to 3,000 by the end of the year. This means resolving about 13.4% of the 22,320 unsold dwellings (as of June) that are classified as serious unsold properties in the provinces through CR REITs.
A representative from the Ministry of Land, Infrastructure and Transport noted, "During the past financial crisis, when the number of unsold dwellings after completion reached 70,000, CR REITs purchased 2,000 units. However, the current size of unsold properties after completion has fallen to around 20,000, so it does not seem that the proportion of CR REITs is low compared to the past."