First Project REITs Chosen for Their 'Public Benefit'

Dongtan: Responding to an Aging Society, Cheonan: Urban Regeneration
Ministry of Land: "Swift Approval in Line with Policy Goals"
Promoting the Establishment of Advanced Development Projects

The government, in selecting the first recipients of 'Project REITs' approval, focused not only on whether formal requirements were met, but also placed significant emphasis on public contribution.

According to the Ministry of Land, Infrastructure and Transport on December 22, the Ministry approved 'Dongtan Healthcare REIT' and 'Cheonan Station Area Innovation District Regeneration Project REIT' as the first Project REITs on December 19.

An official from the Ministry stated, "Under current law, approval is granted if formal requirements such as capital are met. However, Dongtan Healthcare was processed swiftly due to its symbolic significance in responding to an aging society, and Cheonan Station Area was approved quickly because its high level of public interest, stemming from local government participation, aligns with the purpose of introducing the system."

This means that priority was given to business sites capable of generating lasting value, such as operating healthcare facilities or establishing regional hubs, rather than simply constructing buildings and leaving.

REITs (Real Estate Investment Trusts) are joint-stock companies that pool funds from multiple investors to invest in real estate and distribute the profits as dividends. While traditional REITs have mainly focused on acquiring already-built properties to generate rental income, Project REITs are a system where regulations have been significantly eased to allow REITs to participate directly from the development stage.

Previously, REITs could only be utilized after project completion, so during the development stage, project sponsors had to establish Project Finance Vehicles (PFVs) with limited capital and rely on high-interest project financing loans. PFVs, which have no borrowing restrictions, could undertake high-risk projects with as little as 2-3% equity, making them vulnerable to insolvency. However, with this regulatory improvement, it is now possible to raise funds through REITs even before construction begins, resulting in a dramatic change to the financial structure.

The Dongtan Healthcare REIT is a senior housing model tailored to the advent of a super-aged society. Established by MDM, the largest developer in Korea, this REIT will build 1,150 officetel units, 2,898 senior welfare housing units, and an oriental medicine hospital in Hwaseong, Gyeonggi Province. With a total project cost of 2.2 trillion won, completion is scheduled for 2030. After the project is finished, the REIT will directly lease and operate the senior housing and hospital facilities, excluding the officetels.

The Cheonan Station Area REIT is a local government-linked model led by investments from Cheonan City and Korail, aiming to drive urban regeneration. It will provide apartment complexes, knowledge industry centers, and transfer parking lots. Upon completion, the REIT will lease and operate the apartment complexes, while the other facilities will be sold to secure both profitability and public benefit.

Project REITs were officially introduced on November 28. So far, five applications for establishment approval have been submitted to the Ministry, and there have been more than ten preliminary inquiries related to dormitories, rental housing, and power plants.

The government expects market interest to rise further as the Restriction of Special Taxation Act, which allows for the deferral of corporate taxes when contributing land or other assets to Project REITs, will take effect in January next year. The Ministry plans to continue identifying exemplary cases to ensure that REITs with stable equity capital take responsibility for projects from development through operation, thereby establishing an advanced model similar to those in developed countries.