The country's first "project REITs (real estate investment trusts)" that can handle development and operations following real estate investment has been launched. It is the first since the government announced measures to normalize real estate project financing (PF).
According to the Ministry of Land, Infrastructure and Transport on the 21st, the government recently approved two REITs — "Dongtan Healthcare REITs" and "Cheonan Station Area Innovation District Urban Regeneration Project REITs" — as the first project REITs after they filed establishment reports.
A REITs is an indirect real estate investment vehicle in which a professional asset management company (AMC) raises funds from many investors to acquire or develop and operate real estate, distributing the revenue to investors as dividends. A project REITs is a development-specialized REITs that reasonably eases regulations at the development stage.
Until now, the REITs industry found it virtually impossible, due to regulations, to operate properties even if they invested in and built revenue-generating real estate. Because REITs' real estate investments proceeded for the purpose of presales, issues arising in the operations phase after the developer liquidated by selling the property had to be borne entirely by the buyers.
In response, the government revised the Real Estate Investment Company Act and its enforcement decree to open the way for REITs to operate properties after completing real estate development.
If development projects using project REITs spread, developers will be able to retain and directly operate the real estate even after development, generate continuous revenue through leasing, and share the profits with investors, the public.
The two REITs approved as the first project REITs had previously used the PFV method, but applied to convert after the government introduced project REITs.
Dongtan Healthcare REITs is a project to build 1,150 officetel units, 2,898 senior welfare housing units, and an oriental medicine hospital in Mok-dong, Hwaseong, Gyeonggi Province. It was established by MDM, Korea's largest developer. On a site of about 188,000 square meters purchased from the Korea Land & Housing Corporation (LH), it will be built with eight basement levels and 49 above-ground floors.
The total project cost is about 2.2 trillion won, with construction to start in Sep. next year and completion expected around 2030. After the project is completed, the officetels will be sold, while the senior welfare housing and the oriental medicine hospital will be operated as rentals.
The Cheonan Station Area Innovation District Urban Regeneration Project REITs is a project to build multifamily dwellings (254 units), a Knowledge Industry Complex, and a transfer parking lot in Wachon-dong, Seobuk District, Cheonan, South Chungcheong Province. Cheonan City, KORAIL, and the housing & urban fund provided equity, and after development is completed, the REITs will operate the multifamily dwellings as rentals and sell the remaining facilities.
The total project cost is about 256.8 billion won. The project has broken ground and is scheduled for completion in 2028.
Since the full rollout of project REITs on the 21st of last month, more than 10 applications related to development and operations — such as dormitories and offices — have reportedly been filed with the Ministry of Land, Infrastructure and Transport (MOLIT) to establish project REITs.