[News Terms] Investing in Buildings with One Million Won? 'Jogak Investment' Integrated into the System

Fractional investment, which may be directly traded on the Korea Exchange as early as the beginning of next year, is an investment technique where multiple investors jointly invest in a single asset and share the profits together. For example, if one were to invest solely in a building in Gangnam, it might require more than 10 billion KRW, but if multiple investors participate together, it becomes possible to invest as little as 1 million KRW, similar to 'decimal investment' where a single share of stock can be divided and traded.

Financial authorities currently classify fractional investment as a 'financial investment product' within securities. The Musicow incident last year, which sparked controversy over whether music fractional investment should be considered intangible assets or financial investment assets, was a key trigger.

Founded in 2016, Musicow launched a platform for fractional investment in music copyrights and gained popularity. The cumulative number of members surged from 10,000 in 2018 to 1.2 million in 2022, during which debates arose over whether music fractional investment was an intangible asset or a financial investment asset. Financial investment products can only be sold by financial investment business operators authorized by financial authorities, but Musicow was a telecommunications sales operator. Also, when selling financial investment products, the issuer (subscription) and the entity handling distribution (trading) must be different, but Musicow did not comply with this. Although the investment and trading methods were similar to stock investment, since it was not classified as a financial investment product, there were continuous concerns about investor protection.

In response, the Financial Services Commission concluded in April last year that Musicow's copyright royalty participation claims qualify as securities. The basis for this judgment was the investment contract securities system introduced by the amendment of the Capital Markets Act in February 2009. After the amendment, securities are classified into six types: equity securities, debt securities, derivative-linked securities, securities depositary receipts, beneficiary certificates, and investment contract securities. Fractional investment was judged as investment contract securities. Investment contract securities refer to contractual rights to invest money in a joint business and receive profits or losses mainly based on the results of the joint business performed by others, which is conceptually similar to fractional investment. Unlike stocks or funds, it is characterized by the fact that general corporations can issue them by submitting a report in a voluntary registration method even if they are not listed companies.

Subsequently, financial authorities completely revised the securities registration form for investment contract securities at the end of July this year. Through this, fractional investment companies can file investment contract securities according to the form, and once approved by the Financial Supervisory Service (FSS), they can launch fractional investment products.

The first product is likely to be 'Art Together,' an art fractional investment platform that submitted the securities registration form for 'investment contract securities' to the Financial Supervisory Service on the 11th of last month. According to the securities registration form submitted to the FSS, this product plans to raise investment funds through a public offering of investment contract securities to purchase and manage the work titled ‘Stay Song 61’ by American artist Stanley Whitney.

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