High-Intensity Investigation Includes Obligation to Submit Financing Plans... Corporations' Housing Purchases Tightly Restricted

Government Jointly Announces 'Measures Against Speculative Corporate Housing Transactions'
Actions in Response to the Recent Rapid Increase in Real Estate Corporate Establishments and Housing Purchases

High-Intensity Investigation for 'Suspicious Transactions' When Selling Housing to Corporations Where the Seller Is an Executive
Mandatory Submission of Funding Plans for Corporate Housing Purchases Regardless of Region or Amount from Now On

Panoramic view of the Resentz apartment complex in Jamsil-dong, Songpa-gu, Seoul.

[Asia Economy Reporter Lee Chun-hee] The government has put a brake on speculative buying using corporations. Following the announcement of a plan to conduct high-intensity investigations, the submission of a funding plan report will be mandatory for all housing purchase transactions by corporations. A separate real transaction report form for corporations will also be prepared to determine whether the housing purchase is for speculation or gifting.

The Ministry of Land, Infrastructure and Transport, the National Tax Service, the Financial Services Commission, the Financial Supervisory Service, and the Korea Real Estate Board announced on the 11th the "Countermeasures against Speculative Corporate Housing Transactions," which includes these measures to strengthen responses to speculative corporate housing transactions and to ensure transparency and effectiveness in real transaction investigations of corporate real estate transactions.

As the government has consecutively introduced regulations on real estate transactions, the establishment of corporations engaged in real estate sales and rental businesses has been continuously increasing to evade related regulations. At the end of 2017, there were 23,000 real estate sales corporations and 42,000 rental corporations. However, by the end of last year, these numbers increased to 33,000 and 49,000 respectively, an increase of 10,000 and 7,000. The proportion of corporate transactions in total apartment sales also jumped about threefold from 1.0% to 3.0% during the same period. Especially in the metropolitan area, it increased 3.7 times from 0.6% in 2017 to 2.2% last year.

Last month, controversy arose when an 84㎡ (exclusive area) apartment in "Lysence" located in Jamsil-dong, Songpa-gu, Seoul, was sold with a price gap of 600 million KRW, from 1.6 billion KRW to 2.2 billion KRW within a month. However, the highest price transaction was revealed through Asia Economy's investigation to be a gifting transaction sold to a corporation where the previous owners were registered executives. A couple, Mr. A and Ms. B, who were registered as an internal director and auditor respectively, sold the jointly owned apartment to the corporation.

According to the National Tax Service, there are about 6,754 real estate corporations owned by single shareholders and their families. The apartments they hold amount to approximately 20,000 units, averaging 3.2 units per corporation.

Accordingly, the government has previously conducted joint investigations with related agencies on corporate housing transactions in regulated areas, verifying funding plan reports to investigate suspected illegal transactions such as corporate tax evasion and misuse of corporate business loans.

Despite these measures, the corporate housing purchase trend has increasingly concentrated in non-regulated areas of the metropolitan region, where the balloon effect has been focused recently. In Incheon, where the corporate apartment purchase ratio was only 1.7% on average last year, it soared 6.6 times to 11.3% in March. Areas outside regulatory reach such as Osan City (13.2%) and Pyeongtaek City (10.9%) in Gyeonggi Province have particularly increased significantly.

In response, the government has decided to conduct special real transaction investigations on housing transactions by corporations, minors, and non-residents that fail to submit funding plan reports. Currently, in regulated areas such as speculative zones, speculative overheating zones, and adjustment target areas, submission of funding plan reports is not required for transactions under 300 million KRW, and in non-regulated areas, under 600 million KRW.

The government plans to consider transactions where the seller is an executive of the corporation or where the same individual has established multiple corporations purchasing housing through each as suspicious transactions. If speculative trading is suspected, a focused investigation on tax evasion or violations of loan regulations will be conducted. Investigations will be centered on southern Gyeonggi areas such as Ansan, Siheung, Hwaseong, Pyeongtaek, and Incheon, where the balloon effect has been concentrated since the December 16 real estate measures announced last year.

For transactions selected for investigation, the National Tax Service will determine tax evasion, and the Financial Services Commission and Financial Supervisory Service will assess violations of loan regulations such as loan-to-value ratio (LTV) and take necessary actions.

(Provided by the Ministry of Land, Infrastructure and Transport)

In addition to investigations, measures to collect information on corporate real estate transactions will also be promoted. The government plans to separate the housing transaction report forms currently used identically by individuals and corporations and prepare a separate "corporate real transaction report form." This reflects criticism that the current form does not adequately reflect corporate-specific characteristics such as basic corporate information or special relationships between the corporation and the transaction counterparties.

Accordingly, the use of the corporate real transaction report form will be mandatory not only when both parties are corporations but also when only one party is a corporation. The form will require additional reporting of corporate basic information such as capital, business type, and executive information, as well as the purpose of housing purchase and whether there is a special relationship such as kinship between the transaction parties, in addition to the existing reporting items like basic information of buyers and sellers, licensed real estate agent information, and transaction object details.

Furthermore, from now on, submission of a funding plan report will be mandatory for all corporate housing purchases regardless of region or amount. Currently, the obligation to submit a funding plan report is limited to transactions over 300 million KRW in regulated areas and 600 million KRW in non-regulated areas, which makes it difficult to investigate suspicious transactions. However, when a corporation sells housing to an individual, the existing funding plan report obligations based on region and amount will apply to the purchasing individual.

The government plans to finalize and announce a related legislative amendment bill this month, including the mandatory submission of separate report forms and funding plan reports for corporate purchases.

Kim Young-han, Director of Land Policy at the Ministry of Land, Infrastructure and Transport, said, "This joint investigation shows the government's consistent will to strictly and thoroughly verify transactions even if a funding plan report is not submitted, ensuring that no transaction falls into a blind spot." He added, "Regardless of region, we will continue to take strong measures including real transaction investigations and strengthening transaction information collection to counter corporate transactions aimed at evading real estate speculation regulations."

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