"Suspicious Transactions Beware"... After the General Election, Accelerating Efforts to Control Housing Prices

Real Estate Illegal Activity Response Team Accelerates Investigation
Numerous 'Abnormal Transactions' in Gangnam Area Cause Market Confusion
First Investigation Results to Be Announced This Month
Price Collusion, Tax Evasion, Up-Down Contracts, etc.

[Asia Economy reporters Mun Je-won and Lee Chun-hee] As the 21st National Assembly elections have concluded, there is an analysis that the government’s investigation into illegal real estate activities will also be strengthened. Recently, abnormal transactions?where prices are several hundred million won higher or lower than market value?have continued mainly in major apartment complexes in Seoul, making tax evasion and up/down contracts likely to become the focus of intensive investigations. Along with this, investigations into residents’ “price collusion” aimed at market price manipulation are also expected to be fully launched. The market is on high alert, closely watching where the government’s scrutiny will be directed.

According to the Ministry of Land, Infrastructure and Transport (MOLIT) on the 16th, the Real Estate Market Illegal Activity Response Team (hereafter, Response Team), established in February, plans to announce the results of its first investigation this month. A MOLIT official said, “The Response Team is working hard to announce the investigation results within this month,” adding, “The scope and level of the announced content are still under review.”

Industry insiders expect that since the recent general election ended with the ruling party’s victory, the government’s response to curb housing prices will accelerate. In fact, the Response Team is known to have quietly focused on investigating suspicious illegal cases reported through the media and tips, even amid the election noise. Earlier, Park Sun-ho, the first vice minister of MOLIT, appeared on a radio show last month and said, “Reports of price collusion are flooding in,” adding, “More than 160 cases have already been registered.”

Besides price collusion, MOLIT plans to closely examine abnormal transactions in the Gangnam area, which have recently caused market confusion. For example, in Jamsil-dong, Songpa-gu, Seoul, the actual transaction price of an 84㎡ (exclusive area) unit in Resence jumped from a minimum of 1.6 billion won to a maximum of 2.2 billion won within just over a month, sparking controversy.

Asia Economy’s investigation revealed that the lowest-priced transaction at Resence was a special gift transaction between parents and children, while the highest-priced transaction was a sale between a corporation and its executive, indicating that neither was a general transaction. Notably, the transaction reported at 2.2 billion won, which is even higher than the apartment’s royal building asking price (2.1 billion won), was confirmed to have been sold to a corporation where two existing owners are registered executives. One of the owners is listed as an internal director, and the other as an auditor of the corporation.

Such corporate transactions are known to be frequently used to reduce real estate-related taxes. From the seller’s perspective, taxes can be saved through the corporation, and the corporation can increase the acquisition price to reduce capital gains tax later. If taxes such as capital gains tax, acquisition tax, and corporate tax are properly paid and there are no procedural defects, it is not illegal.

However, there may be illegal elements depending on the case. The representative of D Real Estate in Jamsil-dong explained, “Even the best properties facing south near the subway station currently have asking prices around 2.1 billion won,” indicating that this case is not a normal transaction. A MOLIT official said, “We plan to comprehensively review the reported fund procurement plan and whether the transaction was completed,” adding, “If it falls under our illegal criteria, a separate investigation will be conducted.”

Panoramic view of the Resentz Apartment Complex in Jamsil-dong, Songpa-gu, Seoul.

Besides this case, MOLIT has a policy to thoroughly investigate any suspicious illegal transactions occurring in major areas of Seoul and the metropolitan area. The recent sharp rise in government policies and official prices has significantly increased holding and capital gains tax burdens for multi-homeowners, leading to concerns that up/down contracts may increase.

In particular, if the seller is eligible for capital gains tax exemption as a single household with one house, there is a possibility that the buyer may request an up contract at a price higher than the actual transaction price to reduce future capital gains tax. This is classified as a real estate market disturbance because it provides incorrect price information to multiple sellers and buyers.

Recently, it is also known that many transfers are made to children with the actual purpose of gifting to reduce tax burdens. The Resence transaction last month, which was sold for 1.6 billion won, was also reported to be a special transaction between parents and children. Although this is a frequently used method for tax saving, depending on the transaction price, it can become a target of investigation by the Response Team for tax evasion or market price manipulation.

The National Tax Service currently regards any transfer of a house between related parties at a price 5% or 300 million won lower than market value as a sale at market value and recalculates capital gains tax. If the difference between the market price and the transfer price exceeds 300 million won or 30% of the market price, it is effectively considered a gift, and gift tax is imposed.

A MOLIT official said, “We conduct investigations based on separate criteria independent of the National Tax Service,” adding, “Contracts that are abnormally higher or lower than market prices are naturally subject to investigation.”

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