Apartment worth 3.1 billion won sold for 2.2 billion won... Catching 'Suspicious Direct Transactions'

Government Launches Nationwide Investigation into Direct Apartment Transactions
Focus on Illicit Gifts and Nominee Trusts Among Related Parties
Ministry of Land, Infrastructure and Transport: "Collaborating with National Tax Service and Police Agency... Strict Measures to Be Taken"

[Image source=Yonhap News]

An apartment valued at 3.1 billion KRW was traded at 2.2 billion KRW, a drop of 900 million KRW. Upon reviewing the transaction details, the seller was the father and the buyer was the son.

Mr. A reported purchasing an apartment valued at 2.4 billion KRW from Corporation B for 1.6 billion KRW. This was also a direct transaction, and the representative of Corporation B was Mr. A himself.

The Ministry of Land, Infrastructure and Transport announced on the 17th that it will launch a high-intensity planned investigation in three phases into unusual high- and low-priced direct apartment transactions nationwide. This is to crack down on illegal real estate transactions suspected of disguised gifting and name-trust schemes conducted through direct transactions without using licensed real estate agents.

Recently, in the apartment market, unusual trends have been continuously confirmed where special-related parties (such as parent-child, corporation-representative) conduct direct transactions at prices significantly lower than market value to evade taxes like gift tax.

In the above case, the father received an advance payment of 100 million KRW when selling. He then signed a lease contract with the son with a deposit of 2.1 billion KRW and later returned the 100 million KRW advance payment. There is suspicion of evasion of gift tax and capital gains tax. Mr. A may have evaded income tax, and the corporation may have evaded corporate tax.

Nam Young-woo, Director of Land Policy at the Ministry of Land, Infrastructure and Transport, said, "Not all high- and low-priced direct transactions can be deemed illegal," but added, "When transactions occur at prices significantly lower than market value, they may have been used as means for disguised gifting or name-trust schemes."

The proportion of direct transactions in apartment trades nationwide is also rapidly increasing. The share was 8.4% nationwide in September 2021 and rose to 17.8% last September. In Seoul, it surged from 5.2% to 17.4% during the same period.

The Ministry of Land, Infrastructure and Transport continuously monitors the contents of about one million housing transaction reports annually (based on 2021 data) to analyze unusual real estate transactions. For suspicious direct transaction cases, it conducts actual transaction investigations directly or collaborates with local governments for investigations.

This planned investigation will cover apartment transactions nationwide from January 2021 to reports submitted by June next year, focusing especially on unusual high- and low-priced direct transactions between special-related parties.

The investigation will be conducted in three phases. As results come out, suspected illegal acts such as disguised gifting and name-trust schemes will be reported to related agencies including the National Tax Service, the National Police Agency, and local governments for strict action.

The Ministry stated, "There are concerns about side effects such as market instability caused by distorting market prices amid transaction stagnation," and added, "If illegal acts are detected through this investigation, strict measures will be taken to establish transparent transaction order."