"Is Remodeling a Data Center Considered Development?"... Navigating the 'Administrative Guessing Game' [Shaking Urban Development] ③

Shuttling Between Law Firms and the Ministry for Authoritative Interpretations
"Standards Will Be Established as Cases Accumulate"
Communication With the Market Is Key

There are calls for clearer regulations to ensure that project REITs can serve as effective saviors for the stagnant real estate development market. Broadly worded legal provisions, intended to provide flexibility, are instead increasing uncertainty. Companies are kept busy shuttling between government agencies and law firms, navigating what is often referred to as an "administrative guessing game" due to the lack of clear guidelines.

According to the Enforcement Decree of the Real Estate Investment Company Act as of January 23, 2026, the investment scope for project REITs is broadly defined, but core concepts remain ambiguous. In November of the previous year, the Ministry of Land, Infrastructure and Transport amended the decree to include "expansion, reconstruction, remodeling, or relocation of buildings or other artificial structures" in real estate development projects. Although the area requirement for existing expansion and reconstruction projects was removed and remodeling was newly included, the specific scope of what constitutes "development" is still left open to interpretation.

An attorney from a major law firm commented, "There are no standards for determining whether remodeling a single floor of an office building into a data center qualifies as development, or whether two adjacent lots can be combined into a single REIT. There is also no provision explicitly prohibiting these actions, so it seems possible, but in the end, you have to ask the Ministry of Land, Infrastructure and Transport for a definitive answer."

Parent-subsidiary REITs are a representative example where interpretations diverge. In this structure, the parent REIT pools investor funds to acquire shares in a subsidiary REIT, which actually owns and operates the real estate. If the subsidiary REIT directly purchases land and develops it, it qualifies as a project REIT, but the parent REIT's acquisition of subsidiary shares is an indirect investment. In this case, it is unclear whether it meets the legal definition of "investment in real estate development projects." An official from an asset management company remarked, "We only guessed it was allowed after reading an article about Koramco Asset Trust's 'Lion Missing Site' project adopting the parent-subsidiary structure."

The phrase "matters necessary for the stable promotion of the project" in the Enforcement Decree is also a source of concern, as interpretations could change if government officials are replaced. A real estate development industry representative said, "While I understand the intent to leave room for discretion to allow flexible implementation, from a business perspective, it is cumbersome to seek an authoritative interpretation for each case, and legal advisory fees keep accumulating each time."

There are also questions about whether existing Project Financing Vehicles (PFVs) can be converted into project REITs. REITs are required to be established from the outset under the Real Estate Investment Company Act, whereas PFVs are stock companies under the Commercial Act, making their legal nature different. While the Ministry of Land, Infrastructure and Transport has allowed conversions through guidelines, some major law firms have expressed concerns that permitting such conversions solely based on subordinate guidelines, without legal grounds, could be an overreach. They suggest that a transitional provision should be established to clearly define the legal basis, such as "existing PFVs will be considered project REITs if certain requirements are met."

Requests for institutional improvements continue. The industry points to the need for exemption from holding company regulations when conglomerate affiliates own REIT shares, additional acquisition tax reductions, and priority supply of high-quality public land. The Ministry of Land, Infrastructure and Transport has held multiple briefing sessions for law firms and companies and is collecting questions from asset management companies through the Korea REITs Association as part of its communication efforts.

Experts believe that time is needed for the system to take root. An attorney from a major law firm stated, "If every possible scenario were specified in the law, the law would need to be amended for every new situation, which is not practical. It would be better to communicate with the market by organizing and publishing interpretations as cases accumulate." He added, "Since the system is still in its early stages, we expect the Ministry of Land, Infrastructure and Transport to play that role, but we need to see whether it will be managed consistently."