REITs Association Seeks to Make Temporary Tax Breaks Permanent for CR REITs Buying Unsold Regional Homes

REIT establishment takes 6 to 18 months

Calls for reform of annual acquisition-deadline extensions

Comprehensive real estate tax benefits to continue until liquidation

Seeks support for row houses and multi-family homes too

The Korea REITs Association has urged the government to make permanent the tax incentives for corporate restructuring REITs (CR REITs) that purchase completed but unsold homes in regional areas.

The association said on October 15 that it had submitted its proposal to the Ministry of the Interior and Safety, the Ministry of Finance and Economy, and the Ministry of Land, Infrastructure and Transport. CR REITs that purchase unsold homes pool funds from investors to buy the properties, rent them out, and then sell them.

A sales notice is posted at an apartment complex. Yonhap News Agency

The association pointed to the short duration of the tax benefits compared with the time required to establish and operate a REIT. Establishing a CR REIT typically takes 6 to 18 months. It said that extending the deadline for acquiring homes eligible for the benefits by one year at a time makes it difficult to launch new projects as the incentives near expiration.

CR REITs that are the first to acquire completed but unsold apartments outside the Seoul metropolitan area currently pay the regular tax rate instead of the 12% higher rate. This benefit applies only to acquisitions made by the end of this year. The association said the acquisition deadline should be eliminated and eligibility expanded beyond apartments to include row houses and multi-family homes.

The association proposed fully exempting homes in areas with declining populations from acquisition tax, citing limited prospects for rental demand and a recovery in sale prices as the population falls. It also proposed excluding these homes from the minimum tax payment system, which requires taxpayers to pay a portion of the tax even when they receive a reduction. However, to encourage rentals for at least five years, the association proposed reclaiming the exempted tax if a home is sold before then.

The association said deadline-related issues also arise when homes are purchased, rented out, and eventually sold. CR REITs typically operate for five to seven years before being wound up. Since the period during which homes are excluded from the comprehensive real estate tax calculation is five years, the benefit may expire before a sale if the market recovery is delayed or a tenant requests a contract renewal.

To address this, the association proposed extending the period during which homes are excluded from the comprehensive real estate tax calculation until the liquidation is completed. It also urged the government to remove the condition that a property must be transferred within five years of acquisition to qualify for an exemption from the additional corporate tax. The proposal would also make the acquisition deadline for both incentives open-ended, instead of ending next year.

The association also proposed measures to reduce the tax burden of establishing REITs and raising funds. These include making permanent the exclusion of registration and license tax surcharges on the establishment registrations of externally managed REITs and CR REITs in large cities. It also proposed cutting by 50% the registration and license tax on mortgage registrations required to borrow funds to purchase unsold homes, and fully exempting such registrations in areas with declining populations.

Jung Byung-yoon, chairman of the Korea REITs Association, said, "The unsold-home problem in regional areas is structural, with many completed but unsold apartments concentrated outside the Seoul metropolitan area. We need to keep working to address regional unsold homes by making CR REIT tax incentives a permanent system rather than a temporary measure."

This content was produced with the assistance of AI translation services.