"Is This Allowed?" Companies Question Ambiguities... Project REITs Navigate the 'Administrative Guessing Game' [Urban Development in Turmoil] 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 defined legal provisions, intended to provide institutional flexibility, are instead increasing uncertainty. Companies are busy shuttling between government agencies and law firms, navigating what is 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 scope of investment for project REITs has been broadly opened, but core concepts remain ambiguous. In November of last year, the Ministry of Land, Infrastructure and Transport amended the Enforcement Decree to add “expansion, reconstruction, remodeling, or relocation of buildings or other artificial structures” to real estate development projects. While the area requirement for existing expansion and reconstruction projects was removed and remodeling was newly included, the specific boundaries of what constitutes “development” are still left open to interpretation.

An attorney at a major law firm stated, “There are no criteria for whether remodeling just one floor of an office building into a data center counts as development, or whether two adjacent lots can be combined into a single REIT. There is also no provision explicitly prohibiting it, so it seems possible, but to get a definitive answer, you ultimately have to ask the Ministry of Land, Infrastructure and Transport.”

Parent-subsidiary REITs are a representative case where interpretations diverge. In this structure, the parent REIT pools investor funds to acquire shares in a subsidiary REIT, which in turn 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 is making an indirect investment by acquiring shares in the subsidiary. In this case, it is unclear whether this qualifies as an “investment in real estate development projects” as defined by law. An official from an asset management company commented, “We only assumed it was permitted after reading an article about Koramco Asset Trust’s ‘Lion Missing Site’ project being structured as a parent-subsidiary REIT.”

The phrase “matters necessary for the stable implementation of the project” in the Enforcement Decree is also a source of concern, as interpretations may change if the government official in charge changes. A real estate development industry insider explained, “While I understand the intention to leave some discretion for flexible execution, from a corporate perspective, it is cumbersome to seek an authoritative interpretation for each case, and legal advisory fees keep piling up.”

There are also questions about whether existing Project Financing Vehicles (PFVs) can be converted into project REITs. REITs are supposed to be established from the outset under the Real Estate Investment Company Act, whereas PFVs are joint-stock companies under commercial law and have a different legal nature. The Ministry of Land, Infrastructure and Transport has permitted such conversions through guidelines, but some major law firms have expressed concerns that allowing conversion based solely on subordinate guidelines, without legal basis, could constitute an abuse of authority. They argue that it is necessary to establish transitional provisions such as “existing PFVs may be regarded as project REITs if certain conditions are met” to clarify the legal basis.

Requests for institutional improvements are also mounting. The industry has identified several issues: 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 briefings for law firms and companies, and is collecting questions from asset management companies through the Korea REITs Association to facilitate communication.

Experts believe that time is needed for the system to take root. A lawyer at a major law firm stated, “If every possible scenario is codified, the law would have to be amended for every new situation, which is unrealistic. It is better to accumulate cases, clarify interpretations, and communicate them to the market.” 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 will have to see if it is managed consistently.”