[Exclusive] Planned Investigation on Apartments Under 100 Million Won in Provinces... Nationwide 'Net Surveillance'

Korea Real Estate Board Extracts and Investigates Abnormal Housing Transactions
Official Letters Requesting 'Submission of Explanation Materials' Sent to Major Regions Nationwide
Planned Investigation Previously Focused on Capital Area... First Implementation in Provinces

Apartments Under 100 Million KRW in Provincial Official Prices Also Subject to Investigation
Fines Imposed if Sellers, Buyers, or Brokers Fail to Provide Data
Balloon Effect Shifts to Capital Area... Criticism of Delayed Response

[Asia Economy reporters Moon Jiwon and Lee Chunhee] The government has launched a 'planned investigation' to determine whether transactions of mid- to low-priced apartments under 900 million KRW in provincial areas are illegal or evasive. Unusually, many houses with official prices under 100 million KRW in provincial areas were also included in this investigation. Given the recent rapid surge in apartment prices not only in Seoul and the metropolitan area but also in provincial regions, the scope of the investigation has been expanded to curb the overheated market atmosphere.

However, considering that provincial housing transactions continued throughout the second half of last year due to a 'balloon effect' caused by regulations, and that buying demand is now shifting back to the metropolitan area, there are criticisms that this is a 'belated response.'

'Planned investigation' of transactions over 900 million KRW previously conducted in the metropolitan area... now expanded to provinces

According to the government and real estate industry on the 13th, the Korea Real Estate Board recently identified suspicious illegal activities in housing transactions in major regions nationwide and sent 'Real Estate Actual Transaction Explanation Submission Notices' to the parties involved.

The actual transaction investigations conducted by the Ministry of Land, Infrastructure and Transport and the Korea Real Estate Board are divided into 'regular investigations,' which are continuously conducted on high-priced housing transactions over 900 million KRW nationwide, and 'planned investigations,' which are temporarily conducted in overheated housing price areas regardless of transaction price.

Until now, regular investigations have been conducted occasionally in the metropolitan area including Seoul and in provinces, while planned investigations have been conducted in areas such as Gangnam, Songpa, and Yongsan districts in Seoul and some parts of Gyeonggi Province. This is the first time that a planned investigation by the Korea Real Estate Board has been conducted on housing transactions under 900 million KRW in major provincial areas.

(Data from the Ministry of Land, Infrastructure and Transport)

A Korea Real Estate Board official explained, "Planned investigations of suspicious transactions have been conducted in the metropolitan area before, but this is the first time for provinces," adding, "Recently, housing prices in provinces have surged rapidly in a short period, and there have been cases where individuals and corporations purchase multiple houses in a single complex, so we want to verify whether funding and reporting were properly conducted."

Although the criteria for selecting those required to submit explanation materials and the scale of the investigation are undisclosed, many mid- to low-priced houses in newly designated regulated areas such as Busan and Cheonan, Changwon, as of December 18 last year, were included along with Gyeonggi Province. At that time, the Ministry of Land, Infrastructure and Transport expressed its intention to expand planned investigations to provinces, stating, "The methods of illegal activities in the real estate market are diversifying, and the geographical scope is expanding nationwide beyond the metropolitan area."

View of Seoul apartments from the 63 Building observatory./Photo by Hyunmin Kim kimhyun81@

Provincial apartments under 100 million KRW official price... soaring due to multi-homeowner speculation

The government's expansion of the planned investigation scope to mid- to low-priced housing transactions in provinces is due to the overheated market conditions where buying demand has concentrated and apartment prices have surged rapidly in a short period even in provinces without clear positive factors since last year. According to KB Housing Price Trend time series statistics, as of December last year, the nationwide apartment price expectation index was 124.5, the highest since the related survey began in April 2013.

In particular, the inclusion of low-priced houses with official prices under 100 million KRW in provinces in this actual transaction investigation proves that real estate investment is indiscriminately expanding regardless of region or price range. In fact, although the government strengthened the acquisition tax rate for multi-homeowners from the previous 1-3% to up to 12% through the July 10 real estate measures last year, houses with official prices under 100 million KRW were excluded from the heavy taxation, leading to gap investments targeting this loophole.

Investors, mainly multi-homeowners, have been flocking to purchase low-priced apartments in provinces to seek short-term profits, causing prices to surge. A Korea Real Estate Board official said, "If the official price is under 100 million KRW, multi-homeowners are exempt from acquisition tax, so there are cases of purchasing 3 to 4 units through gap investments," adding, "A 100 million KRW property can become 200 million KRW in six months, so even if they pay a lot of capital gains tax, they think it's profitable and engage in short-term trading."

In areas such as Cheonan in Chungnam, Changwon in Gyeongnam, and Goyang in Gyeonggi, houses priced below 100 million KRW officially have seen concentrated buying by investors since the second half of last year, with many complexes experiencing price increases of over 100 million KRW within just a few months. For example, the Eun-A Apartment 49.83㎡ (exclusive area) in Gaeum-dong, Seongsan-gu, Changwon, was traded between 170 million and 190 million KRW until October last year, but by the end of November, actual transaction prices rose to 290 million KRW. In the same month, 45 transactions occurred in this complex.

Regarding suspicious transactions, not only buyers but also sellers and real estate agents who mediated the transactions must submit explanation materials. Buyers who receive the notice must submit payment proof documents such as deposit and withdrawal details from two weeks before the contract deposit payment date to two weeks after the final payment date, income certificates, bank deposit amounts, proceeds from stocks and insurance, loan amounts, and other related documents within 14 days.

Sellers must submit deposit and withdrawal details, and real estate agents must submit copies of sales contracts and property confirmation and explanation documents. Failure to submit materials may result in fines up to 30 million KRW, and if inappropriate transactions are found, real estate agents may face disciplinary actions such as suspension of business. The results of this investigation are expected to be announced as early as March or April.

Need to curb speculation in provinces but... criticism of 'belated response' again

Local governments have also conducted actual transaction investigations on suspicious transactions, but most have only one or two dedicated personnel per city or county, making it difficult to detect illegal activities in mid- to low-priced housing. The government plans to expand the scope of planned investigations to mid- to low-priced housing in provinces to thoroughly examine funding sources, illicit loans, gifts, and up/down contracts to identify speculation.

However, the industry points out that the government is responding belatedly as speculative demand is already moving from provinces back to the metropolitan area. In fact, housing statistics show that after designating 37 areas including Busan and Changwon as regulated regions at the end of last year, the price increase in provinces has slowed while the rise in the metropolitan area has accelerated.

Although there are unavoidable aspects in the investigation process, there are complaints that the criteria for submitting explanation materials are unclear and the requested documents are excessive. A real estate agent in Busan said, "It feels like being treated as a criminal even though there is no suspicion of a crime."

Professor Choi Hwangsoo of Konkuk University's Department of Real Estate said, "Since buying demand is already returning to core areas like Seoul, this investigation is about 7 to 8 months late," adding, "While investigating funding sources can control speculative investments such as overseas investments, most housing purchase funds now come from abundant liquidity due to low interest rates, so apart from psychological deterrence, it is difficult to expect much effect."

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