As illegal practices increase in which parties conclude real estate contracts at prices higher than market rates and then cancel them to artificially boost home prices, the government will strengthen verification of real estate transaction cancellations. Instead of the parties to the transaction or a licensed broker writing free-form reasons when canceling a real estate transaction contract, they will be required to report by type, so that the Ministry of Land, Infrastructure and Transport can more closely scrutinize intentional cancellations aimed at inflating home prices.
According to the Ministry of Land, Infrastructure and Transport on the 29th, the Ministry of Land, Infrastructure and Transport (MOLIT) is pushing to categorize reasons for cancellation in the "report form for cancellation of real estate transaction contracts." When a real estate transaction contract is canceled, nullified, or rescinded, the parties to the transaction or a licensed broker must complete a report and submit it to the reporting authority under the Enforcement Rule of the Act on Report on Real Estate Transactions.
Currently, the report requires a free-form description of the reason for canceling a real estate transaction contract. As a result, to determine whether a contract was canceled with the intent to boost home prices, the government had to review and analyze each report one by one.
However, the Ministry of Land, Infrastructure and Transport (MOLIT) will move to revise the report by categorizing cancellation reasons to quickly detect abnormal transactions. Reasons such as the buyer's lack of funds or mutual agreement to cancel will be organized by type on the form and reported accordingly. Once the report is improved, it is expected to be easier than before for the government to check whether there was an intent to manipulate market prices among transactions whose contracts were canceled.
An official at the Ministry of Land, Infrastructure and Transport (MOLIT) said the ministry plans to improve the "report form for cancellation of real estate transaction contracts" by categorizing cancellation reasons, strengthening checks and analysis of market-disturbing conduct.
The Ministry of Land, Infrastructure and Transport (MOLIT) is improving the report because illegal practices are increasing—particularly in areas such as Seoul where home prices are rising—in which sham contracts are concluded at prices above market rates and then canceled to artificially raise prices. As part of a planned probe into efforts to inflate actual real estate transaction prices through methods such as canceling after reporting a high-price transaction, MOLIT found suspected violations in 142 transactions out of 437 abnormal transactions between March 2023 and Aug. of this year.
In a recently uncovered case, a person surnamed A concluded a transaction contract to sell a Seoul apartment to a family member, a person surnamed B, for 820 million won, higher than the market rate. The sales contract remained in place for about a year before a cancellation was reported, and A immediately signed a contract to sell the apartment to a third party for 800 million won. The Ministry of Land, Infrastructure and Transport (MOLIT), noting that although this was an intermediary transaction the brokerage commission listed in the contract was not paid, suspected a false report and requested an investigation by the Korean National Police Agency.
The number of transaction contract cancellations also hit an annual high this year. According to the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system, of 80,397 apartment sale transactions in Seoul tallied from the start of the year through the 28th of this month, 5,990 were cancellations, accounting for 7.45% of all transactions. This is the highest figure since the system began marking whether a contract was canceled in 2020.
This plan to categorize transaction report forms is expected to take effect next year after revisions to the Enforcement Rule of the Act on Report on Real Estate Transactions.