Real Estate Regulations Tighten Further... Now Nationwide Coverage

On the 21st, Illegal Activity Response Team Deployed... From Next Month, Nationwide Obligation to Prove Source of Funds for Transactions Over 600 Million Won

[Asia Economy Reporter Lee Chun-hee] As most of the follow-up procedures to the real estate measures announced on December 16 last year are being completed, the perceived intensity of regulations is expected to increase significantly. On the 21st, a 'Real Estate Market Illegal Activities Response Team' will be established, and price collusion and false contracts will become punishable offenses. The reporting period for actual transaction data will also be halved. Starting next month, proving the source of funds will be mandatory for real estate transactions nationwide involving houses priced at 600 million KRW or more.

According to the Ministry of Land, Infrastructure and Transport on the 17th, from the 21st, the amendment to the 'Real Estate Transaction Reporting Act' will be enforced, and the Real Estate Market Illegal Activities Response Team will begin full-scale market monitoring activities starting this weekend. On the 14th, the Ministry announced detailed regulations regarding the establishment and operation of the 'Emergency Response Organization for Illegal Activities in the Real Estate Market.' The response team is an organization under the First Vice Minister of Land, with the Director of Land Policy serving as the team leader. A senior official at the level of a director was appointed on the same day as the head of the investigation division responsible for practical work. Within the response team, personnel including special judicial police will be assigned to directly handle and review transaction reports.

The government announced the results of two joint investigations of actual transactions in the Seoul area conducted in November last year and on the 4th of this month. A total of 2,869 transactions suspected of excessive borrowing, cash-based deals, or disguised gifts were investigated, and 1,202 cases (41.9%) were reported to the National Tax Service as suspected tax evasion.

▲ Last October, a joint real estate on-site inspection was conducted in Daechi-dong, Gangnam-gu, Seoul. (Photo by Lee Chunhee)

Once the response team is fully launched, the scope of investigations will expand further. Until now, the focus was on the 25 autonomous districts of Seoul, but going forward, the entire areas of 31 speculative overheated districts nationwide?including Gwacheon, Gwangmyeong, Hanam, and Bundang-gu in Seongnam City in Gyeonggi Province, Suseong-gu in Daegu, and Sejong?will fall under investigation. Furthermore, when the obligation to submit a funding plan report upon actual transaction reporting expands next month to include transactions of houses priced at 600 million KRW or more in non-regulated areas, virtually most housing transactions nationwide will become targets of the response team. The newly strengthened funding plan report requires specifying the exact source of funds when financing is through gifts or inheritance, and providing detailed reasons when payment is made in cash.

The deadline for reporting actual real estate transactions, along with the buyer’s funding plan, will be shortened from 60 days to 30 days starting on the 21st. This will make it difficult for frontline brokerage offices to deliberately delay transaction reporting to postpone reflecting market prices. False contracts such as self-dealing will incur fines of up to 30 million KRW. Additionally, attempts at price collusion will be subject to criminal penalties. On the same day, the amendment to the 'Certified Real Estate Agent Act' will be enforced, allowing for penalties of up to three years imprisonment or fines up to 30 million KRW for such offenses.

With these procedures completed, the December 16 real estate measures, regarded as the strongest regulations in history, will effectively reach their final stage. However, since the government and even the Blue House have recently stated that "additional regulations will be introduced if market instability occurs," industry experts expect that additional real estate measures are likely if localized rapid price increases appear in certain areas.