[In-Depth Review] How to Eradicate Real Estate Speculation Using Insider Information by Public Officials

The situation is becoming increasingly serious. Recently, the People's Solidarity for Participatory Democracy (PSPD) and the Lawyers for a Democratic Society (Minbyun), along with PSPD, exposed the fact that employees of the Korea Land and Housing Corporation (LH) engaged in speculation by purchasing land within the 3rd New Town districts in Gwangmyeong and Siheung, Gyeonggi Province, before the announcement of these districts. The real estate speculation behavior of the corporation’s employees revealed is truly astonishing. It is already well known that they took out loans of 5.8 billion KRW from local agricultural cooperatives to illegally purchase farmland and densely planted fast-growing weeping willows there. Recently, it has also been reported that they used the special apartment supply system allowed for employees of relocated public institutions to acquire additional apartments, which they immediately sold for profits ranging from tens of millions to hundreds of millions of KRW.

Real estate speculation by public officials, including LH employees, is not a problem that suddenly surfaced due to the accusations by PSPD and Minbyun. Since the 1970s, rapid urbanization caused a surge in Seoul’s population, and to disperse the population concentrated in the Gangbuk area, full-scale development of Gangnam began. Under government leadership, private lands such as rice paddies, fields, and forests were expropriated by the state and developed into residential urban areas, then sold to those with purchasing power. According to Article 23, Paragraph 3 of the Constitution, the state cannot arbitrarily expropriate private land. Expropriation and use of property rights are only permissible for public necessity. If the state expropriated private land, it should have been used for public purposes.

Nevertheless, after expropriating private land, the state developed it into housing complexes and sold it to private individuals. This policy has consistently encouraged real estate speculation. In the early 1970s during Gangnam development, Blue House employees bought land expected to be expropriated at low prices, received compensation, made hundreds of times profit, and used it as political funds. During the Roh Tae-woo administration in 1989, five areas including Bundang and Ilsan were designated as the 1st New Towns, turning these planned sites into speculation grounds. As a serious social issue, a large-scale investigation uncovered about 13,000 real estate speculators, including 131 corrupt public officials, and 987 people were arrested. During the Roh Moo-hyun administration in 2003, after announcing the 2nd New Towns, a special crackdown on real estate speculation caught 9,700 people, with 300 arrests, including 27 public officials. Every time a new town designation announcement, which drives up housing prices, was made, real estate speculation intensified, and speculation by public officials and related employees with insider information was never eradicated. Although laws prohibiting real estate speculation by public officials were continuously enacted and amended, officials either directly engaged or mobilized relatives to buy land, or conducted nominee transactions, cleverly evading legal restrictions to seek unfair gains.

To prevent public officials involved in housing or land development from speculating using internal development information, public housing or land should not be developed and sold to the private sector in the first place. If operated as public long-term rental without private sales, private parties cannot make speculative profits from development projects. Naturally, related public officials would find it difficult to speculate using this information. This approach would shift housing supply policy from sales-centered to rental-centered, greatly contributing to long-term housing stability and price stabilization. Of course, there are cases where private land is expropriated in the early stages of land development, and during this process, some may buy land cheaply in anticipation of cash compensation or land swaps. The recent LH incident appears to have occurred in this context. For this, it is necessary to strengthen preemptive monitoring and supervision systems and to enhance legislative measures for civil, criminal, and administrative sanctions afterward. The Capital Markets Act, which strictly regulates stock trading using insider information, could serve as a benchmark. Recently (March 24), amendments to the Public Housing Special Act and the Korea Land and Housing Corporation Act have already addressed some of these issues. Provisions for regular investigations and surveys on real estate transactions using insider information were introduced, along with clauses for imposing fines and confiscation/recovery of unjust profits amounting to three to five times the property gains obtained through insider information. The amended Korea Land and Housing Corporation Act also introduced a compliance officer system and provisions on anti-corruption education alongside these regular investigations.

Furthermore, it is necessary to introduce a property registration system requiring public officials in public institutions handling real estate-related work or information to register their assets; a holding and purchase reporting system obliging officials to report to the head of the institution if they own or purchase real estate related to their duties; and a real estate acquisition restriction system limiting officials in departments recognized to acquire real estate in their related fields and jurisdictions. If a public official acquires farmland using undisclosed information, the head of their institution should notify the local government where the farmland is located, and the local government head should be empowered to issue a disposal order and impose enforcement fines immediately. Above all, from a civil perspective, if a public official conducts real estate transactions using insider information, they should bear liability for damages to the counterparty who unknowingly sold at a low price. If the official conceals illegal acts by entering into nominee agreements and registrations with others, they should be prohibited from exercising rights over the relevant real estate, thereby decisively removing economic incentives for real estate speculation.

Baek Juseon, Attorney at Law, Law Firm Yungpyeong

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