[2020 National Audit] HUG Controls High Sale Prices... Did Staff Set Prices Arbitrarily?

[Asia Economy Reporter Lee Chun-hee] It has been revealed that the high-priced housing price review conducted by the Housing and Urban Guarantee Corporation (HUG), a government control measure for sale prices, may be carried out based on arbitrary criteria by practitioners.

According to data submitted by HUG to Song Eon-seok, a member of the National Assembly Land, Infrastructure and Transport Committee from the People Power Party, among the 205 complexes that have undergone high-priced housing price reviews so far, 18 projects were issued sale guarantees despite not meeting the criteria for selecting comparable projects.

Currently, HUG selects comparable projects by meeting at least two of the following criteria under the "Detailed Rules for High-Priced Project Review Regulations": location (similar living area), complex size (number of households), and brand (ranking of construction company’s construction capability evaluation amount). Based on the average and highest sale prices of the comparable projects, HUG issues sale guarantees according to the appropriate sale price calculated. However, there is an exception rule allowing the head of HUG’s sales department to select comparable projects based on subjective judgment during on-site visits, raising ongoing concerns about reliability.

According to this exception rule, it was confirmed that among the 18 cases, the head of HUG’s sales department directly selected comparable projects in 3 cases. In particular, there are cases under audit by the Board of Audit and Inspection where allegations have been raised that the comparable projects were changed at the request of the developer.

According to the audit contents, in August last year, a developer of a project in Daejeon who received a sale guarantee from HUG requested to exclude a nearby Korea Land and Housing Corporation (LH) project from the comparable projects and to set the sale price at 10.5 million KRW per 3.3㎡. In response, the local branch, after consulting with the headquarters’ review evaluation department, selected a different comparable project without an on-site visit and issued a sale guarantee at the developer’s desired price of 10.5 million KRW per 3.3㎡.

However, the newly selected comparable project met the location criteria but failed to meet the complex size and brand criteria. As a result, the set sale price was 3.25 million KRW higher per 3.3㎡ than if the LH project had been used as the comparable project. Since all households in this complex were supplied with 84㎡ (exclusive area), the sale price per household rose by about 100 million KRW.

DMC Lotte Castle The First (Susaek 4 District), which received a sale guarantee in June 2017, selected Sangam World Cup 10 Complex during the sale price calculation process, but it was found that the selection criteria were not met. The complex size and construction company rankings were 1,192 households and 861 households, and 9th place (Lotte Construction) and 112th place (Jungan Construction), respectively, failing to meet the criteria.

Song Eon-seok, Member of the People Power Party

Assemblyman Song Eon-seok pointed out, "The current system has a blind spot where the head of HUG’s sales department can arbitrarily select comparable projects during the high-priced housing price review process to raise or lower the sale price," adding, "It is understood that an incident occurred where the sale price was raised by accepting lobbying from companies and abusing the detailed rules, and an audit by the Board of Audit and Inspection is underway."

Song emphasized, "If the sale price increases due to lobbying during the review process, the burden will fall entirely on the public and inevitably cause disruption in the real estate market," and added, "The system must be improved so that HUG cannot arbitrarily select comparable projects."