Illegal and Abnormal Real Estate Transactions Prevail, Including Evasion of Gift Tax and Loan Regulation Violations

[Asia Economy Reporter Yoo In-ho] Despite the government’s strong crackdown on the real estate market, illegal activities and abnormal transactions such as illicit and illegal gifts, violations of loan prohibition regulations, and breaches of name-trust agreements are rampant in the Seoul area. This has raised concerns that the government’s real estate regulations are not effective in the market.

The joint investigation team composed of the Ministry of Land, Infrastructure and Transport, Ministry of the Interior and Safety, Financial Services Commission, Seoul Metropolitan Government, Financial Services Commission, and Korea Real Estate Board announced on the 4th at a briefing on the “Second Results of the Joint Investigation on Actual Transactions in the Seoul Area” held at the government complex in Sejong City that out of 1,333 cases investigated, 768 cases (57.6%) were identified as illegal or abnormal transactions.

The joint investigation team conducted the second investigation on a total of 1,333 cases, including 545 cases from the first investigation last year that had not yet been reviewed, 187 cases of abnormal transactions from August to September last year that could be investigated after intermediary contracts were completed, and 601 cases of abnormal transactions reported in apartment deals in October last year.

By region, there were 508 cases (38%) in Gangnam, Seocho, Songpa, and Gangdong districts; 158 cases (12%) in Mapo, Yongsan, Seongdong, and Seodaemun districts; and 667 cases (50%) in the other 17 districts. This means that the ‘Gangnam 4 districts’ and the ‘Mapo, Yongsan, Seongdong’ areas, where real estate prices are rising the most in Seoul, account for half of the cases.

Regarding transaction amounts, 457 cases (36%) were over 900 million KRW, 353 cases (26%) were between 600 million KRW and 900 million KRW, and 505 cases (38%) were under 600 million KRW. This indicates that illegal and abnormal transactions are particularly prominent in mid- to high-priced housing priced above 600 million KRW.

Among these, the joint investigation team decided to notify the National Tax Service of 670 cases suspected of tax evasion such as gift tax evasion. For 94 cases suspected of violating loan regulations, such as misuse of business loans by individual business owners, the Financial Services Commission and Ministry of the Interior and Safety plan to investigate financial companies for regulatory violations. One case suspected of a name-trust agreement violation will be reported to the National Police Agency for investigation. Additionally, the Seoul Metropolitan Government plans to impose fines of about 30 million KRW for three cases violating the Real Estate Transaction Reporting Act, including false reporting of contract dates.

For example, Mr. A in his 20s was reported to the National Tax Service on suspicion of illicit gifting by registering his parents as tenants and receiving 450 million KRW as rental deposit (jeonse). Mr. A purchased an apartment worth about 1 billion KRW in Seocho-gu last June with a loan of 450 million KRW from a financial institution and 100 million KRW of his own funds.

Mr. and Mrs. B, living in Seocho-gu, were caught in a suspected tax evasion case after selling an apartment worth about 1.7 billion KRW to their 20s child last October at 1.2 billion KRW, which was 500 million KRW below market price to reduce taxes.

C Corporation, engaged in retail business, purchased an apartment worth about 2.5 billion KRW in Gangnam-gu last July under the corporation’s name and received a corporate business loan of 1.9 billion KRW from a mutual finance cooperative. The Financial Services Commission plans to investigate on suspicion of violating the ban on corporate fund loans for housing purchases in speculative areas.

Mr. D was reported to the National Police Agency on suspicion of a name-trust agreement violation. Mr. D changed the ownership of an apartment worth 450 million KRW in Gangdong-gu, which he purchased in August last year, to an acquaintance Mr. F in October, two months later. However, Mr. D paid the entire housing fund and signed a lease contract (250 million KRW) with Mr. F, while actually residing there himself, raising suspicion of violating the name-trust agreement. The joint investigation team regards this as a prohibited act under the “Act on Real Name Registration of Real Estate.”

A Ministry of Land, Infrastructure and Transport official said, “During the second investigation, the joint investigation team thoroughly reviewed submitted documents and opinions from transaction parties, including sales contracts, proof of payment, proof of fund sources and procurement, and financial transaction confirmations,” adding, “We will continue strict investigations into illegal and abnormal transactions.”

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