Public Support for Private Rental Projects to Facilitate Smooth Financing

From the 29th, Expansion of Institutions Eligible for Private Rental REITs Secured Loans and REIT Borrowing

The Ministry of Land, Infrastructure and Transport and the Korea Housing & Urban Guarantee Corporation (President Yoo Byung-tae) will implement improved systems from the 29th to revitalize the public-supported private rental business, including secured loans for private rental REITs and expanding financial institutions eligible for REIT borrowing. This is a follow-up measure to the 'Housing Supply Expansion Plan' announced on January 10. It includes support for smooth financing of public-supported private rental projects, alleviation of participation burdens, realistic criteria for project commencement review, and simplification of project implementation procedures.

To support smooth financing of private rental projects, the range of financial institutions from which REITs can borrow will be expanded, and refinancing of loan funds will be allowed. Currently, to diversify funding channels mainly from insurance companies, the Enforcement Decree of the Real Estate Investment Company Act has been amended and implemented to additionally designate institutions with excellent asset size and market trustworthiness, such as the Korea Scientists & Engineers Mutual Aid Association and the Korea Firefighters Mutual Aid Association, as eligible borrowing institutions for REITs.

Project financing (PF) loans executed during the construction period will be allowed to be refinanced into low-interest loans during the rental period. To reduce the burden on private operators participating in the project, the standards for secured loans and transfer of private shares invested in public-supported private rental REITs will be improved.

Previously, when private participants provided shares held by the operator as collateral for stock-secured loans, the existing condition requiring comprehensive succession of shareholder status to the acquirer of the shares after collateral execution was uniformly imposed. This condition will be abolished, and project obligations can be fulfilled through agreements.

The number of transferable shares, currently limited to 50% of held shares, will be expanded to 100%, allowing private holders to transfer all their shares. The timing of transferability will be advanced from 4 years after tenant move-in to immediately after move-in.

Additionally, the requirement that transfers are only possible if the vacancy rate is below 5% and residential services are rated excellent or higher will be abolished to support smoother share transfers.

When conducting business feasibility reviews for the Housing and Urban Fund's investment in public-supported private rental REITs, the housing price increase rate used as the standard will be updated to support project commencement.

The housing price increase rate used to estimate the expected disposal price after the mandatory rental period will be raised by 0.5 percentage points compared to the current rate. This is expected to increase the number of projects meeting the minimum return criteria for fund investment, thereby expanding project commencement.

The period from selection as the preferred negotiator to project commencement will be shortened to reduce procedural burdens on operators caused by prolonged project durations.

The mandatory construction cost verification system, which applied to all projects, will also change. Construction costs below the calculated ceiling amount, derived by partially applying the housing sale price calculation rules, will be exempt from verification, shortening the verification period by one month.

The validity period of land cost appraisal and market price survey results applied during fund investment review will be extended from 6 months to 1 year. This will reduce approximately 2 months and costs required for reappraisal and resurvey.

Furthermore, overlapping content between the fund investment review conducted by the Korea Housing & Urban Guarantee Corporation and the REIT business license review conducted by the Korea Real Estate Board will be integrated in the first half of the year, enabling completion of the business license review within two weeks after the fund investment review.

Lee Ki-bong, Director of Housing Welfare Policy at the Ministry of Land, Infrastructure and Transport, stated, “Through these institutional improvements to revitalize private rental REITs, financing and project implementation conditions will improve, and we expect the public-supported private rental business to be revitalized.”

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