The government and the Seoul Metropolitan Government suspected that the 7th Hyundai Apartment in Apgujeong-dong, Gangnam-gu, Seoul, which was sold for 8 billion won on April 5, was a bicycle transaction, but could not reveal the illegality.
House prices surge due to ‘real residence for two years of reconstruction’
Bando Construction Chairman Kwon Hong-sa, the actual seller
At the 15th Weekly Housing Supply Briefing held at the government complex in Sejong on the 22nd, Jeong Seung-hyeon, head of the real estate transaction analysis and planning division of the Ministry of Land, Infrastructure and Transport, said, “After media reports on the 7th transaction of the Hyundai Apartment in Apgujeong, the Gangnam-gu Office consulted with the Seoul Metropolitan Government and completed the investigation.” “As we could not find any special suspicions, we notified the National Tax Service as a reference for tax administration,” he said.
Reported transaction at 8 billion won, up 1.5 billion won
Initially, this transaction became a hot topic because the contract was made for the first time in Apgujeong-dong at 8 billion won, which is 100 million won per pyeong (based on supply area, 80 pyeong). Compared to last August, an apartment of the same area was traded for 6.5 billion won, it jumped by 1.5 billion won. In addition, interest grew as KPD Development, a subsidiary of Bando Construction, a mid-sized construction company, was identified as the seller. KPD Development sold the apartment for 3.31 billion won (US$3.31 million) through an auction in 2013, more than double the price of 8 billion won.
The buyer was a married couple, the Kims, who lived in another complex in Apgujeong-dong. It was initially reported that the purchase price was paid in cash, but that was not true. It was revealed that the seller, KPD Development, had set up a near-mortgage of 1.95 billion won for this apartment. The Kims were unable to pay all the money to buy the apartment, leaving some of them in debt.
As soon as this fact became known, the Seoul Metropolitan Government began an investigation into whether the people who bought this apartment from KPD Development had a special relationship with Bando Construction. At the time, a senior Seoul official said, “In general, people who do not know each other do not set up a mortgage, so it is doubtful whether it is a special relationship or whether they are raising prices among themselves.”
Ministry of Land, Infrastructure and Transport “Setting a near-mortgage right cannot be viewed as illegal”
However, as a result of a joint investigation between the Ministry of Land, Infrastructure and Transport and the Seoul Metropolitan Government, no suspicious points were found. Jeong Seung-hyeon, head of the Real Estate Transaction Analysis and Planning Division, explained, “The fact that a mortgage was set as a private transaction alone cannot be regarded as illegal.”
During the real house price rise, there are often cases in which ownership is transferred before the balance is paid. If you look at the real estate-related online community, there are a lot of people asking about the legality of these transactions.
This method is usually used when the seller urgently needs to dispose of the house due to tax issues. It is also known that the Apgujeong Hyundai Apartment transaction used a transaction method in which the ownership was first transferred under the agreement of both sides in order to quickly finish the transaction before the establishment of the association.
Even if the buyer cannot repay the money, the seller lent money using the house as collateral, so when the house is auctioned off, it can receive preferential repayment equal to the amount of the mortgage. Buyers can also buy a house quickly and enjoy a profit from the market price, while still having time to raise the remaining balance.
Report march led by real residence regulation for 2 years of reconstruction
In the end, the government recognized that the transaction between the two sides was ‘legal’, but the real estate industry believes that there are two unfortunate points in relation to the 8 billion won transaction in Apgujeong.
First of all, it is pointed out that the reason for the hasty house contract was because of the ‘establishment of a cooperative’, which caused ‘private finance’ in the form of borrowing money from the landlord.
The reason why there was a boom in the establishment of a cooperative in Hyundai Apartments in Apgujeong earlier this year was due to the recently blanked out ‘reconstruction two-year real residence obligation’.
The problem is that, since the transfer of union membership is prohibited after the association is established, more people are rushing to buy apartments to avoid this regulation. In the process, in the Apgujeong apartment complex, the transaction price exceeds the all-time high. This continued. When the Apgujeong complex, a representative of Gangnam reconstruction, shook, the aftermath spread throughout Gangnam, and apartment prices in Gangnam, which had been quiet until the beginning of the year, turned upward.
Another is tax. The government imposes high taxes such as heavy capital gains tax on multi-homeowners. However, in the case of this apartment transaction, Bando Construction Chairman Kwon Hong-sa, who is the de facto seller and de facto multi-family house, escaped heavy duty regulation and rather enjoyed the benefits of ‘corporate tax reduction’ by driving the group’s insolvent assets into the subsidiaries that own apartments. The house next door on the same floor as this apartment is Chairman Kwon’s house.
In this transaction, KPD Development’s transfer income, excluding incidental expenses such as acquisition tax, is about KRW 4.9 billion. Since KPD Development, which has a large loss, has a large loss, the transfer-related tax will be reduced to KRW 1.5 billion. 20% of general corporate tax and 20% of corporate tax on house transfer are levied on capital gains from housing owned by corporations, but KPD Development has a cumulative loss of 2.8 billion won. It is almost the only company with a loss among 10 Bando Construction subsidiaries.
Bando Construction is a private company owned by Chairman Kwon Hong-sa 100%, and is a solid company that ranked 14th in the construction industry last year (construction capacity ranking).
Correspondent Kim Won [email protected]