SOUTH KOREA Trends and Developments Contributed by: Junghwan Lee, Dong Seok Woo, Jun Woo Cho and Jee In Kim, Lee & Ko
Key Institutional Reforms Relating to REITs Full-scale implementation of the Project REIT regime For decades, Korean commercial and residential real estate development has relied heavily on high- leverage third-party financing. The traditional project finance model typically involved thin sponsor equity – often below 5% of total project costs – combined with high-cost bridge financing prior to permanent project financing. This model generated significant returns for developers in a low-interest-rate and rising-market- price environment, but the model has become mate - rially more vulnerable in a period of elevated interest rates and rising construction costs. In response to these structural constraints, the South Korean government introduced the project real estate investment trust (Project REIT) through the compre - hensive 2025 amendments to the Real Estate Invest - ment Company Act and related subordinate regu - lations, and the regime became fully operational in November 2025. The key features and implications of the Project REIT are as follows. • Fast Project Launch Through a Filing-Based Pro - cedure: Unlike a regular REIT (which means any REIT other than a Project REIT in this article), which generally requires government authorisation and is therefore subject to a substantive review process that typically takes two to three months or longer, a Project REIT may commence development activi - ties such as land acquisition and construction upon filing alone. Because review at the filing stage is focused primarily on objective and formal require - ments, the structure offers greater flexibility across a wider range of development strategies, including post-development sale projects and projects with partial income-generating components. • Flexible Early-Stage Capital Access and Tax Benefits for In-Kind Contributions: Historically, regular REITs have operated under significant pre- authorisation constraints on in-kind contributions, borrowings, bond issuances and third-party share subscriptions. Project REITs, by contrast, may utilise these funding tools immediately upon filing, giving sponsors and strategic investors earlier and more flexible access to capital and reducing dependence on high-cost bridge financing during
the initial phase of a project. Furthermore, since December 2025, domestic investors contributing land or buildings in-kind to a Project REIT have been permitted to defer capital gains tax aris - ing from the contribution. In practical terms, this reform may encourage landowners to participate as equity partners rather than demanding a cash exit, thereby materially reducing the upfront fund - ing burden associated with land acquisition. • Private Operation During Development and Stabi - lisation: Regular REITs are required to complete a public offering of at least 30% of their shares within three years of authorisation, following which indi - vidual ownership is limited to 50%. A Project REIT, however, is only required to obtain authorisation within one and a half years after project comple - tion, which may be extended to up to two years, and remains exempt from both the public offering obligation and the share-distribution requirement for five years after authorisation. As a result, the structure can support a closed-end operating period of up to seven years following completion, allowing a select group of sponsors and profes - sional investors to stabilise the asset in a more private and flexible operating environment, while reducing the risk of premature disclosure of sensi - tive project information, enabling faster investor decision-making, and enhancing the overall stabil - ity of the development. • Broader Exit Options: Traditional PFVs used in Korean development projects have typically been built around mandatory sale and liquidation upon completion. A Project REIT, however, may continue to own and operate the asset after completion, enabling investors to capture both operating yield and upside in asset value. Given that the public offering timing for a Project REIT is postponed for a substantial period, investors may evaluate multi - ple exit routes in light of prevailing market condi - tions, including asset sales, share deals and, in the longer term, a public offering and/or listing. Project REITs are being viewed as a key investment vehicle capable of addressing long-standing limita - tions in Korea’s development market. The government has also opened a pathway for existing regular REITs and PFVs to convert into Project REITs by making the required filing within the prescribed period.
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