From This Month, Investment in Real Estate and REIT ETFs Allowed

Investment in Listed Indirect REITs and Real Estate ETFs Now Allowed through ETFs
Measures Introduced to Prevent Excessive Management Fees
Periodic Evaluation of Alternative Investment Assets Mandated
Financial Services Commission to Monitor Implementation and Consider Further Improvements

From this month, investment in listed indirect REITs and real estate/REIT ETFs through exchange-traded funds (ETFs) will be possible.

The Financial Services Commission announced on the 11th that the amendment to the Enforcement Decree of the Capital Markets Act and the Financial Investment Business Regulations, which includes these provisions, was approved at the Cabinet meeting. This is part of the 'Measures to Enhance the Competitiveness of Public Offering Funds' disclosed in January.

The amendment aims to expand investors' choices who want to invest in real assets such as real estate by allowing ETFs to invest in listed indirect REITs and real estate/REIT ETFs. At the same time, it introduces institutional measures to prevent excessive fees charged by management entities. When the management entity of the ETF and the target asset is the same, it prohibits the duplication of management fees under the same name and requires a fee structure favorable to investors compared to general market conditions.

Under the current Capital Markets Act, funds are prohibited from investing in indirect funds to prevent excessive fee collection and complex product development. As a result, there have been continuous criticisms that the diversity of real investment products investing in domestic real estate is insufficient and investors' choices are limited. As of the end of last year, among 935 domestic ETFs, only 13 (5 domestic investment, 8 overseas investment) are real estate/REIT ETFs, accounting for about 1.4%.

The Financial Services Commission expects that "since individual real estate funds and REITs currently invest in a limited number of properties, the institutional improvement will make it easier for investors to diversify their investments in the real estate market."

Additionally, the amendment mandates periodic evaluation of alternative investment fund assets such as real estate and infrastructure, and requires evaluation by external professional institutions. The Asset Valuation Committee for Collective Investment Property must evaluate assets valued at fair value at least once a year, and when evaluating assets invested by real estate and infrastructure funds, the prices provided by external professional institutions within the past year must be given priority.

The amendments to the Enforcement Decree of the Capital Markets Act and the Financial Investment Business Regulations are scheduled to be promulgated and announced on the 18th, respectively. The allowance for ETFs to invest in real estate indirect funds will take effect immediately upon promulgation, while the strengthening of alternative investment asset evaluation will be implemented six months after the promulgation and announcement dates.

Regarding the strengthening of alternative investment asset evaluation, for collective investment properties evaluated by the Asset Valuation Committee for Collective Investment Property more than one year before the enforcement date, an evaluation must be conducted within three months from the enforcement date, and the evaluation results from external professional institutions must be given priority.

The Financial Services Commission stated, "We plan to monitor whether the institutional improvements are properly established in the field and review whether additional improvements or supplements are necessary to protect investors and other matters."