[Edaily Marketin KIM SUNG-SOO Reporter] As the government pushes to revitalize REITs (Real Estate Investment Trusts), concerns have been raised that the Fair Trade Act is actually hindering the growth of REITs affiliated with large conglomerates.

It is argued that applying the same regulations to REITs—which were established for the purpose of investment and asset securitization—as those applied to general corporate groups runs counter to the intent of the system, and therefore the Enforcement Decree of the Fair Trade Act must be amended.

Large Corporate Group REITs Also Subject to ‘Fair Trade Act’ Regulations

According to the financial investment industry on the 4th, there are growing calls within the REIT sector to amend Article 38 of the “Enforcement Decree of the Act on Monopoly Regulation and Fair Trade (hereinafter the Fair Trade Act)” to include REITs among the exceptions to the designation of corporate groups subject to disclosure.

Article 38, Paragraph 1 of the current Enforcement Decree stipulates that “business groups with total assets of 5 trillion won or more in the immediately preceding fiscal year” shall be designated as “business groups subject to disclosure.” These are also referred to as “quasi-large conglomerates.”

Once designated as a corporate group subject to disclosure, disclosure obligations are strengthened regarding △corporate governance, △internal transactions among affiliates, and △large-scale transactions. Although the relevant legislation explicitly lists certain corporate groups as “exempt,” “REITs” are not included among the exemptions.

Consequently, if a sponsor REIT affiliated with a large conglomerate is part of a corporate group subject to disclosure requirements, it will be subject to △strict restrictions on holding company activities and △disclosure obligations regarding internal transactions.

A “sponsor REIT” refers to a real estate investment trust (REIT) in which a large parent company (sponsor)—such as a major conglomerate or financial group—participates as a major shareholder by holding equity or by supplying its own high-quality real estate assets, thereby underpinning the REIT’s credibility and asset supply.

The issue is that, unlike general business companies, REITs are investment vehicles that pool investor funds to invest in real estate and distribute dividends. The industry views it as excessive regulation to apply the same standards to REITs—which function as “investment vehicles”—as to companies whose purpose is “corporate control.”

Controversy Over “Regulation Extending to Asset Securitization”

Although large conglomerates are also considering establishing sponsor REITs to securitize their real estate holdings, it has been reported that regulations on corporate groups under the Fair Trade Act are acting as a burden.

From the perspective of these conglomerates, although REITs are investment vehicles designed to manage assets efficiently, they are subject to the same regulations as affiliates, which creates constraints on business operations.

The REIT industry has been continuously calling for deregulation, citing constraints on fundraising and swift decision-making.

Previously, Jeong Byeong-yun, Chairman

the Korea REITs Association, emphasized the need for regulatory relaxation to revitalize sponsor REITs affiliated with large conglomerates

Chairman Jeong stated, “Major conglomerates such as Samsung are seeking to utilize REITs to liquidate assets, but they face difficulties due to corporate group regulations under the Fair Trade Act,” adding, “It is necessary to revise the system so that the same regulations are not applied to investment and asset liquidation purposes when they are not intended for corporate control.”

The industry stresses that REITs should be viewed as tools for investment and asset securitization, rather than as means of corporate control. They argue that, just as REITs are operated under a separate system distinct from general corporations in major overseas markets, institutional reforms are also necessary in Korea.

An official from the financial investment industry said, “While the government emphasizes the revitalization of REITs, the relevant regulations still apply the same rules as those for general corporations,” adding, “To foster sponsor REITs affiliated with large conglomerates, it is necessary to consider including REITs as an exception to the designation of corporate groups subject to disclosure requirements in the Enforcement Decree of the Fair Trade Act.”