Overlapping Regulation Balloon Effect... REITs Scale at 61.4 Trillion Won

Focus on Logistics and Data Center-Centric Products

On the afternoon of the 17th, a view of the Gangnam area from the Korea International Trade Association in Gangnam-gu, Seoul

Idle funds, which have lost their place due to consecutive real estate regulations, are flocking to REITs (Real Estate Investment Trusts). Amid the growing uncertainty in the real estate market, REITs are gaining attention as part of individual investors' portfolios with the expectation of generating stable returns.

REITs are an indirect real estate investment method that pools funds from multiple investors to invest in real estate and real estate-related securities, and then returns the profits to the investors.

According to the Ministry of Land, Infrastructure and Transport's REITs Information System on the 18th, the asset size of REITs recorded 61.4 trillion won as of January this year. This is a 26.3% increase compared to 48.6 trillion won in January last year. This reflects the situation where real estate liquidity is seeking alternative investment destinations due to accumulated regulations such as loan restrictions, resale restrictions, increased taxes, and development profit recapture.

By utilizing REITs, individuals can invest small amounts in high-quality real estate such as large office buildings, which are otherwise difficult to access. Regular cash flow generation through dividend income can also be expected. According to the Commercial Information Research Institute, 14 companies had dividend yields exceeding 10% last year, and 3 companies exceeded 20%. However, compared to the stock market boom last year, the performance is considered relatively poor. There were also about 100 companies with a dividend yield of 0%.

However, as uncertainty deepens due to supply surges and real estate regulations, there is also an expectation that REITs will emerge as a stable investment destination this year. Cho Hyun-taek, a researcher at the Commercial Information Research Institute, said, "The real estate investment environment has become difficult this year due to various regulations such as tax pressure, strengthened loans, and mandatory residence," adding, "Interest in REITs is increasing as they have relatively low entry barriers, can expect relatively stable returns, and also offer tax benefits."

Ko Jun-seok, an adjunct professor at Dongguk University Law School, analyzed, "The poor performance of REITs last year was largely due to the failure to anticipate the COVID-19 situation," noting that most REIT products included hotels, commercial buildings, and offices, resulting in relatively low returns.

This year, logistics-related REITs are particularly attracting attention. The 'Coupang boom' on the New York Stock Exchange is interpreted as a signal for the growth of logistics REITs. ESR Kendall Square REIT, a logistics center product listed in December last year, rose about 16% from its public offering price as of the 17th.

Professor Ko said, "The core of real estate REITs lies in the underlying assets that make up the product," and added, "Considering the COVID-19 situation, attention should be paid to REITs holding logistics or data centers this year." He advised, "Rather than simply focusing on companies with high existing yields because REITs are promising, one should approach by considering real estate market trends and future value."

The government plans to significantly strengthen tax benefits for REITs to absorb liquidity and redirect funds to housing supply. To promote rental construction, the criteria for excluding private rental business operators using REITs and real estate funds from comprehensive real estate tax aggregation and property tax reduction will be relaxed from 600 million won or less to 900 million won or less, respectively. In addition, dividend income from public REIT investors will be taxed separately. Furthermore, preferential loan benefits from the Housing and Urban Fund will be provided for public REITs that the general public can participate in.