Project REITs D-Day on the 28th... Awakening Conglomerates' 'Sleeping Real Estate' [Real Estate AtoZ]

Idle Assets of Conglomerates Tied Up by Tax Burdens
Project REITs Expected to Offer a Breakthrough

The "Project REITs" system, set to be implemented on November 28, is expected to serve as a catalyst for revitalizing the development of idle assets held by large conglomerates, which have been constrained by tax burdens. Project REITs is a new system that allows REITs (Real Estate Investment Trusts) not only to invest and operate as before but also to directly engage in development. The government, local authorities, and the legal sector are all rushing to establish response systems, and the real estate industry anticipates that the landscape of the development market will be reshaped.

Deferred Capital Gains Tax on In-Kind Contributions... Greater Incentives for Conglomerates to Develop

According to the real estate industry on November 16, Lee Kyungja, Head of Alternative Investments at Samsung Securities Research Center, stated in a recent report titled "2026 Commercial Real Estate Outlook: An Evolving Development Market Amid Uncertainty" that "Project REITs will lay the foundation for the development of high-quality land held by major corporations," and added, "It is expected that land owned by conglomerates, which has been left idle due to tax burdens, will be released for development."

The key feature is the deferral benefit, which allows companies to postpone paying capital gains tax when contributing land or buildings in kind for development, until the point at which they dispose of their REITs shares. This means that, from a corporate perspective, the largest barrier to initial development costs-tax burdens-is removed, enabling them to deploy previously locked-up land for development without financial pressure.

Lee assessed that "the proportion of real estate assets relative to total assets among major Japanese corporations is between 2% and 5%," while the proportion among Korean companies is relatively high. According to Samsung Securities' analysis as of the end of last year, the combined total assets of 12 major groups (based on separate financial statements of listed companies) stood at approximately 2,207 trillion won, with real estate-related assets (tangible assets and investment properties) accounting for an average of 13.2% (about 290.36 trillion won). In particular, Lotte Group's real estate-related assets amount to about 29.756 trillion won out of total assets of approximately 82 trillion won, representing a ratio of 41.4%-the highest among major groups.

The book value of these groups' real estate holdings is mostly recorded at acquisition cost, so the actual value is often underestimated. For example, at the end of last year, Lotte Shopping saw the value of its real estate increase from 13 trillion won to 34 trillion won through asset revaluation. Lee stated, "In the past, development or sale was difficult due to tax burdens, but with Project REITs, it is possible to reduce the capital gains tax burden and retain control over the property after completion," adding, "If a REIT asset management company (AMC) operates a Project REIT and, after completion, an affiliated REIT incorporates the asset, further synergy can be expected." She described this as "an opportunity to secure quality assets at reasonable prices."

The Race to Secure 'Pilot Deals' Has Already Begun

Location map of Lotte Chilsung site in Seocho-dong, Seocho-gu, Seoul. The site area is approximately 13,000 pyeong, located in a prime area near Gangnam Station and Seoul National University of Education Station. Seocho-gu and Samsung Securities

The industry is closely monitoring where the first Project REITs deal will emerge immediately after the system's implementation, as early market entry could determine future competitiveness.

Successfully completing the first project will enable a company to build a track record in a market expected to grow to trillions of won. This will serve as a core competitive advantage in subsequent negotiations for permits, financing, and investor recruitment. Large construction firms and AMC real estate finance divisions at banks are already engaged in behind-the-scenes competition.

In the market, the logistics center site of Lotte Chilsung Beverage in Seocho-dong, Seocho-gu, Seoul, is being mentioned as the top candidate for the first deal. It is a prime site of about 13,000 pyeong. Samsung Securities noted, "This year, Samsung Electronics purchased a nearby site for 2 billion won per pyeong," and added, "Based on this, the value of the Lotte Chilsung site is estimated at between 2 trillion and 3 trillion won."

The 2 trillion won-scale healthcare project being pursued by MDM Plus in Dongtan New Town, Hwaseong, Gyeonggi Province, is also cited as an early candidate. Even among the sites mentioned as potential "first deals," the scale already reaches the trillion-won level, drawing significant market attention to what standards the inaugural transaction will set.

'2% Capital Ratio' PFV Limitations Surpassed... Ushering in the Era of Complex Development

A diagram explaining the process of transitioning from a structure divided into 'PFV development → REITs operation' to a 'single system' with the introduction of project REITs. Ministry of Land, Infrastructure and Transport

Project REITs are expected to effectively replace the Project Financing Vehicle (PFV) system, which has been in use for over 20 years. While traditional PFVs were nominal companies that dissolved after development and sales, Project REITs retain and operate assets even after development, managing rental income and asset value appreciation over the medium to long term. The intent is to allow REITs to generate profits through development by supporting their ability to develop and incorporate quality assets first.

Whereas existing PFVs typically had a capital ratio of only 2%, Project REITs, which will be implemented this month, require 10 to 20 times more capital than before. Financial authorities have consistently pursued "raising the PF capital ratio" to innovate the PF market. Lee commented, "Project REITs, in line with this policy direction, are expected to serve as a catalyst for promoting large-scale complex development, beyond single-asset development."

With higher capital requirements, Project REITs are granted various tax benefits. Tax burdens are significantly reduced from the stage of holding real estate. For example, the property tax on land is applied at a favorable single rate of 0.2%, separate from the aggregate taxation of PFVs (0.2-0.4%). If registered as a public REIT, comprehensive real estate holding tax is exempted, which is a significant benefit compared to the 0.5-0.7% tax rate applied to existing PFVs. Public REITs can also receive up to a 50% reduction in the 4.6% acquisition tax typically paid by PFVs. In addition, unlike the previous requirement for "business approval" from the Ministry of Land, Infrastructure and Transport, Project REITs can start business quickly with just a "registration of incorporation." The usual approval period of 1 year and 6 months is expected to be drastically shortened.

Law Firms Mobilize for 'Project REITs' Boom... Ministry of Land Considering Additional Incentives

With the implementation of the Project REITs system imminent, the legal sector is also moving quickly. Major law firms are rapidly establishing dedicated task forces and recruiting high-profile experts to prepare for market entry.

Yulchon LLC is preparing its response under the leadership of Senior Advisor Park Byungtae, who previously served as a branch manager at Woori Investment & Securities and as the inaugural Secretary General of the Korea REITs Association. Kwangjang LLC recruited former Vice Minister of Land, Infrastructure and Transport Park Sunho as an advisor this year and established a "Project REITs Integrated Support Team" led by Park. Jipyung LLC launched a "Project REITs Integrated Support Center" and brought on board Kim Hyungjun, a former head of the REITs Review Department at the Korea Real Estate Board, as a specialist. Sejong LLC has also formed a Project REITs task force and joined the market response.

The government is also accelerating efforts to ensure the system takes root. Kim Seungbeom, Director of the Real Estate Investment System Division at the Ministry of Land, Infrastructure and Transport, stated at a recent seminar hosted by the Seoul Real Estate Forum, "In addition to the deferred tax benefits, we are reviewing ways to provide additional incentives across all stages from development to operation, in cooperation with local governments."