1. Study Objectives and Method

❚ This study seeks to enhance the efficacy of the special provisions aimed at revitalizing indirect real estate investment under the Jeonbuk Special Act and to establish an environment conducive to indirect real estate investment while identifying additional provisions for inclusion in the Act’s amendment.

￮ The Jeonbuk Special Act stipulates that if a financial institution in which Jeonbuk residents hold at least a 50% stake purchases 50% or more of the shares issued by a real estate investment company for investment in Jeonbuk State, exceptions can be made to general subscription and ownership limits.

￮ Scheduled to take effect in December 2024, this special provision aims to be effectively implemented by examining whether financial institutions meet the eligibility criteria and establish an environment that enables their investment. The ultimate goal is to build a conducive environment for indirect real estate investment.

❚ This study conducted a legal review of the Real Estate Investment Company Act and the Capital Markets Act while analyzing the indirect real estate investment environment in Jeonbuk. As such, it aims to strengthen business models for types of real estate subject to investment demand and address institutional weaknesses by proposing amendments to the special act or introducing regulatory measures.

￮ In Jeonbuk, financial institutions with at least 50% resident ownership are mutual financial institutions. This study thus examines the Real Estate Investment Company Act, the Capital Markets Act, and the legal basis for establishing mutual financial institutions to assess the types of businesses they can engage in as well as the methods and scale of managing surplus funds.

￮ The primary objective of the Jeonbuk Special Act’s provisions on revitalizing indirect real estate investment is not only to promote real estate investment trusts (REITs) but also to serve as a catalyst for real estate development within Jeonbuk State. Therefore, the focus is placed on private REITs rather than public REITs in the review.

￮ By examining the REITs ecosystem in Jeonbuk State, this study developed business models to enhance the profitability of REITs focused on real estate types with expected increasing demand.

2. Conclusion and Policy Suggestion

❚ This study proposes additional special provisions to further promote indirect real estate investment.

￮ The current public offering exemption condition requires that a financial institution with at least 50% ownership by Jeonbuk residents purchase the shares. However, it does not address cases where institutions eligible for public offering exemptions under the Real Estate Investment Company Act make investments. Given the limited surplus funds of local financial  institutions, meeting this requirement is challenging. Therefore, this study proposes expanding the public offering exemption conditions and introducing a special provision allowing mutual financial institutions to autonomously adjust their surplus fund investment limits.

￮ To promote investment in various types of real estate within Jeonbuk State, this study proposes a special provision that separately defines the scope of real estate and sets specific limits on real estate investments in other regions.

❚ This study proposes market formation strategies to promote indirect real estate investment.      

￮ The types of real estate expected to see increasing demand in Jeonbuk State include mixed-use urban development, urban regeneration projects, and unsold property projects. This study, therefore, proposes strategies to ensure these types of projects’ profitability.

￮ To encourage small-scale investors to actively participate in real estate development in Jeonbuk State, this study proposes the establishment of asset management companies at the regional level, while also suggesting tax incentives and the creation and operation of anchor REITs as measures to support REITs and investors.

❚ It is essential to continuously explore various indirect real estate investment methods beyond REITs regulated under the Real Estate Investment Company Act.

￮ The central government is promoting policies to revamp the REITs system with a focus on public REITs; however, the public offering exemption provision in the Jeonbuk Special Act contradicts this policy direction.

￮ Nevertheless, the Jeonbuk Special Act aims to involve local financial institutions in regional development and promote real estate development in Jeonbuk State, and as such, this study seeks to continuously review deregulation measures for real estate funds and the project financing vehicle (PFV) model.  

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