New Real Estate Trusts Slow to Attract Applicants

Real estate investment trusts are getting off to a slow start, with the government reporting that not one application to set up a real estate investment trust company had been received as of Monday, one month after Seoul approved the instruments.

Industry officials said the apparent lack of interest in these investments, called REITs, reflects the tight investment market and uncertainty over whether they are attractive enough, considering the requirements for participation.

Construction Ministry officials said there are companies and financial firms that are preparing to enter this market. Budongsan.com, Sekyung I&C and Digital Taein are testing the water. Their interest lies in the more traditional REITs, which distribute shares to investors in exchange for the capital contributed and pay dividends.

But complicating their plans is the dearth of affordable properties with potential for respectable yields, industry official said. "A return of 9 percent is considered the minimum yield required to be able to pay dividends," an official said. Others said restrictions, such as the cash-only capital contribution policy and the ban on borrowing the capital investment, may discourage investors.

Korea Development Bank, Hanvit Bank, and Kyobo Insurance reportedly will provide REITs that handle the properties of firms in restructuring.

by Cha Jin-yong