"REITs Should Be Allowed to Register Purchased Apartments as Long-Term Rentals," Korea Association of Real Estate Investment Trusts Urges Government

Calls for regulatory reforms to boost rental housing supply
"REITs required to rent for 10 years differ from short-term investment corporations"

The Korea Association of Real Estate Investment Trusts said Tuesday that it had submitted a proposal to relevant government agencies, including the Ministry of Land, Infrastructure and Transport, the Ministry of Economy and Finance, the Ministry of the Interior and Safety, and the Financial Services Commission, calling for the removal of restrictions on purchase-to-rent schemes so that REITs can acquire apartments favored by tenants and lease them out. The association says supply has been sharply curtailed because long-term rental REITs, which cannot sell their properties for 10 years, are subject to the same regulations as speculative corporations seeking short-term capital gains.

Seoul apartment complexes and homes. Reporter Kang Jinhyeong

Under the current Private Rental Housing Act, apartments are excluded from registration as purchased long-term general private rental housing. In other words, the law itself prevents REITs from registering apartments they buy on the market as long-term rental housing.

On top of this, the same regulations that apply to ordinary speculative corporations seeking short-term capital gains impose multiple burdens: a 12% acquisition tax surcharge, inclusion in the comprehensive real estate holding tax calculation of homes worth 900 million won or more in the Seoul metropolitan area, and a 0% loan-to-value (LTV) limit on homes in regulated areas. The association says these restrictions make it difficult for REITs to acquire apartments and supply them as long-term rental housing.

According to the association, as of last month, 208 rental housing REITs (rental-type) had supplied about 219,000 homes. However, only 20 rental housing REITs are operated entirely by the private sector rather than the public sector, accounting for 4.6% of assets. New approvals for acquisition-type and mixed-type REITs that buy homes to rent them out have fallen to two or fewer a year since 2023, with none approved in the first half of this year.

The association said REITs differ from corporations set up for speculative purposes. They receive business approval from the Ministry of Land, Infrastructure and Transport and are subject to disclosure requirements, as well as public-interest regulations requiring them to rent out homes for at least 10 years and limiting annual rent increases to 5%. The association said, “Rental housing REITs are long-term rental operators for whom the very model of ‘buying and selling when prices rise’ is impossible,” adding that they cannot sell homes for 10 years and therefore cannot pursue short-term capital gains.

The five institutional reforms proposed by the association are allowing purchased apartments to be registered as long-term general private rental housing; excluding homes supplied by rental housing REITs from the comprehensive real estate holding tax calculation; easing loan regulations for refinancing and acquiring newly built homes; exempting REITs from the acquisition tax surcharge and waiving the clawback of reduced taxes in the event of a comprehensive transfer; and supporting efforts to promote REIT listings.

Regarding loan regulations in particular, the association called for the existing LTV limit to remain in place when refinancing or renewing loans for existing rental housing without increasing the loan amount, and for an exception to loan restrictions when newly built rental housing is acquired for the first time. It also proposed lifting the ban on loans for acquisition-type rental housing REITs in adjustment target areas.

The association stressed that its proposal was not a request for preferential treatment. It said it was asking the government to ease tax and loan regulations in line with the public obligations already borne by REITs that receive government approval and are required to rent out homes for 10 years, with annual rent increases capped at 5%. It added that requiring REITs to repay all tax reductions if they violate their obligations would preserve the original purpose of the regulations, which is to prevent speculation.

An association official said, “Long-term rental housing REITs are long-term housing providers operating under government approval and supervision and are required to rent out homes for at least 10 years. They should not be judged by the same standards as corporations seeking short-term gains.” The official added, “We hope the rules will be improved to curb speculation without restricting rental housing.”

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