Exploiting Loopholes to Inflate Housing Prices... 'Real Transaction Price Disclosure System' Requires Improvement

After Contract Report, Paying Balance and Registering Title Using Gaps... Duplicate Transactions of the Same Property
Rental Market Still Unstable but Government Dismisses as "Initial Implementation Confusion"... Emphasizing Only Positive Effects of 'Lease 3 Laws'

[Asia Economy Reporter Kangwook Cho] On the 21st, the government announced the detection of real transaction price manipulation, confirming suspicions raised by some quarters about artificially inflating housing prices. There were even cases where licensed real estate agents and sales agencies, key players in the real estate transaction market, were involved in price manipulation, making it inevitable for the government to enhance the ‘Real Transaction Price Disclosure System.’

However, the government still dismissed concerns about the sharp rise in jeonse prices and the conversion of jeonse to monthly rent as merely ‘initial confusion during implementation,’ drawing criticism for the significant gap between the market’s perception and the government’s stance.

◆ How were housing prices inflated? = According to the government’s announcement on the 21st, a licensed real estate agent, Mr. A, reported a sale of apartment B under his child’s name at an inflated price, registering it as a record-high transaction. After raising the market price, Mr. A brokered the apartment again to a third party at a high price. He then canceled the previously reported transaction. This method of duplicating transactions on the same property effectively inflated the price.

There was also a case where an employee of a sales agency raised prices through false internal transactions involving company-owned real estate and sold it at a high price to a third party. After closing the deal, the employee canceled the previously reported record-high transaction. This is a typical form of self-dealing, where false contracts are created through family or internal transactions, registered as real transactions, and then the contracts are annulled.

This kind of real transaction price inflation exploits the gap between contract reporting, payment of the balance, and registration of the deed. In fact, there have been numerous cases of transaction cancellations suspected to be related to price inflation. Analyzing 855,247 apartment sales transactions registered in the Ministry of Land, Infrastructure and Transport’s real transaction system last year, Rep. Junho Cheon of the Democratic Party found that 37,965 cases (4.4%) were canceled transactions. Among these canceled transactions, 31.9% (11,932 cases) were record-high transactions at the time.

◆ The Lease 3 Acts emphasized only positive effects, excluding price issues = Regarding the Lease 3 Acts, which mark their first anniversary, the government emphasized only positive effects, showing a perception that contrasts with the market’s evaluation. An analysis of 100 large apartment complexes representing the jeonse and monthly rent markets in 25 districts of Seoul showed that the renewal rate rose from an average of 57.2% during the year before the Lease 3 Acts implementation (September 2019 to August 2020) to 77.7% as of May this year. Furthermore, due to the application of the rent ceiling system limiting rent increases to 5% or less when exercising the right to request contract renewal, 76.5% (10,000 cases) of 13,000 renewal contracts raised rent by 5% or less compared to the previous rent. The government self-assessed, "Although there were some initial confusions during the introduction of the Lease 3 Acts, the system is stabilizing based on data from the lease reporting system."

Despite the government’s emphasis on the effects of the Lease 3 Acts, the market remains skeptical. Some argue that the increase in renewal rates benefits only existing tenants, while the government consistently avoids addressing the sharp rise in jeonse prices. Professor Kyo-eon Shim of Konkuk University’s Department of Real Estate stated, "For those other than existing tenants, the situation has worsened due to the surge in jeonse prices. Since the Lease 3 Acts prevent contract termination, the renewal rate naturally increases, but if the government only mentions this, it is misleading the public."

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