Lower Sale Prices Than Jeonse Prices... 'Unusual Transactions' in Mokdong Apartments

Many Abnormal Transactions as Ownership Tax Imposition Date Approaches
Apartment Listed at 950 Million Won Sold for 580 Million Won
Lower Than Jeonse Price of 630 Million Won for Same Size Unit

[Asia Economy Reporter Moon Jiwon] As June 1, the date for imposing property holding taxes such as property tax and comprehensive real estate tax, approaches, unusual transactions where apartments are contracted at prices several hundred million won lower than market value are occurring frequently across Seoul. While some of these are urgent sales to avoid holding tax burdens, there is also analysis that a considerable number are gift-like sales between related parties. Recently, in Mokdong, Seoul, sales prices even lower than the jeonse (long-term deposit lease) prices have appeared. As these unusual transactions continue, confusion surrounding the housing market following the government's high-intensity real estate measures is increasing.

According to the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system on the 4th, an 84㎡ (exclusive area) apartment in Kumho Eoullim, Mokdong, Yangcheon-gu, Seoul, was traded for 580 million won on the 24th of last month. Considering that the current asking price and actual transaction price are about 950 million won, this is 370 million won lower than the market price. Although it is a low-floor unit on the 3rd floor, nearby real estate agents explain that it is difficult to consider this a normal transaction given that a 1st-floor unit in this apartment was sold for 890 million won in November last year.

The representative of real estate agency A in Mokdong said, "The price makes no sense," and added, "It seems to be a transaction between family members or relatives without going through a brokerage office." A Yangcheon-gu office official explained, "It is true that the parties involved reported this price," and added, "Whether it is an appropriate price or not will be confirmed later when the National Tax Service or the Ministry of Land investigates the tax aspects."

In particular, this transaction is at a lower price than the jeonse contract of the same size concluded last month. This apartment had a jeonse contract for 630 million won on March 12. The representative of real estate agency B said, "It is unprecedented for a sale price to be lower than the jeonse price in a prime area of Seoul, not even in the outskirts."

Such unusual transactions have been occurring frequently this year, mainly in the Gangnam area. On March 18, a 108㎡ unit in Shinsigaji 4 Complex, Mokdong, was traded for 1.4 billion won. This is several hundred million won lower than the current asking price and 265 million won cheaper compared to a 95㎡ unit on the same floor sold for 1.665 billion won just the day before. Nearby brokerage offices analyze that it is highly likely to be a gift-like sale between related parties.

In March, an 84㎡ unit in Resentz, Jamsil-dong, Songpa-gu, was traded for 1.6 billion won, 500 million won lower than the previous high price of 2.1 billion won, and recently it was traded for 2.2 billion won, 100 million won higher. Because of this, the industry speculated that the low-price transactions might be between father and son.

The reason unusual transactions are occurring across Seoul is that the official prices of high-end apartments in Gangnam have surged this year, leading more homeowners to dispose of their houses before the holding tax imposition date. It is also analyzed that the government's temporary suspension of capital gains tax surcharges for multi-homeowners who have owned houses for more than 10 years until the end of June is a background factor for the increase in unusual transactions. A commercial bank official said, "Recently, wealthy individuals are increasingly transferring properties to their children through burdened gifts rather than selling houses to save taxes."

The Ministry of Land is also closely monitoring the market situation. On the 21st of last month, the Ministry detected 835 cases suspected of disguised gifting and tax evasion involving relatives and reported them to the National Tax Service. Among these, 236 cases (28.3%) occurred in the four Gangnam districts. An industry official said, "Since unusual transactions are concentrated in the Gangnam area, it is understood that the government is focusing its investigative efforts on actual transactions in high-priced complexes."