The REITs Association: "Public Offering Funds and ETFs Should Also Be Allowed to Invest in Sub-REITs"

[Asia Economy Reporter Noh Kyung-jo] The Korea REITs Association announced on the 14th that it has proposed to the government an amendment to the Enforcement Decree of the Capital Markets Act to allow public funds and exchange-traded funds (ETFs) to invest without restrictions in listed indirect REITs.

This is due to the fact that while public interest in real estate indirect investment products is increasing, public funds and ETFs are unable to invest in listed indirect REITs, limiting opportunities to invest in high-quality real assets.

The association explained, "Real estate indirect investment products are increasingly adopting indirect structures for operational efficiency. However, under the Capital Markets Act, if a listed REIT invests more than 40% of its total assets in funds, public funds and ETFs are prohibited from investing to prevent duplicate receipt of management fees."

This results in a reduction of investment opportunities for general investors and also blocks plans for listed indirect REITs that aim to list high-quality real estate held by funds. Currently, listed indirect REITs include NH Prime REIT, Aegis Value REIT, and Aegis Residence REIT.

The association pointed out, "When the fund management company and the asset management company (AMC) of the listed REIT are the same, the issue of double fee collection does not arise, and since layered indirect structures for real asset funds within asset allocation funds are already permitted, this regulation is inconsistent in terms of fairness." It added, "ETFs meet diversification requirements such as being composed of 10 or more securities, so the risk of contagion due to the failure of a specific asset is low."

Furthermore, "If public funds are allowed to invest in listed indirect REITs, the approval-related time required will be shortened, and there will be cost savings due to the application of deemed acquisition tax. Institutional improvements are essential to provide equal investment opportunities to the general public and to revitalize public funds and ETFs," it said.