The risk has grown smaller that the Bundang apartment in Seongnam, Gyeonggi, jointly owned by President Lee Jae-myung and the first lady, will become what the industry calls a "paper dud," meaning it would not receive reconstruction association member status. With the apartment sale contract in its final stage, the key is whether the buyer completes the ownership transfer registration before the trustee is designated as the reconstruction project executor.
A "paper dud" is industry slang for a property where the buyer of a reconstruction apartment cannot succeed to association membership and may be cashed out instead of receiving the right to move into the new apartment. Because reconstruction expectations are hard to fully reflect in the sale price, it is also harder to find a buyer than for general listings.
According to the presidential office and the real estate industry on the 15th, the 164.25-square-meter (59-pyeong) apartment in Yangji Village, Kumho Complex 1, Sunae-dong, Bundang-gu, jointly owned by President Lee and Kim Hea-kyung, is about to sign the main contract with a buyer. Lee said at a Cabinet meeting the day before, "I no longer have a home." A senior presidential office official also said, "We plan to sign the main contract within a few days." Lee had listed the apartment for 2.9 billion won, but the actual contract price was not confirmed.
The market is focused on when the buyer will pay the balance and complete the ownership transfer registration. Because this complex is pursuing reconstruction through a trust method, the registration must be finished before the trustee is designated as the project executor for the buyer, in principle, to succeed to association membership.
For reconstruction by the general association method, the benchmark date is the approval date of association establishment; for the trust method, it is the date the trustee is designated and publicly notified as the project executor, which determines whether association membership can be transferred. After the benchmark date, exceptions such as being a one-household, one-home owner who has owned for at least 10 years and lived there for at least five years must be met to transfer association membership.
The presidential couple each holds a 50% equity stake in the apartment. Lee is known to have met the long-term ownership and residency requirements, but Kim, who received her equity as a gift from Lee in late Nov. 2018, has not met the 10-year ownership requirement.
Accordingly, if the ownership transfer registration takes place after the project executor is designated, the buyer may not be able to fully succeed to association membership for the entire jointly titled equity. Kim's equity could be subject to cash settlement because succession to association membership is restricted. From the buyer's perspective, the registration must be completed before the project executor is designated to avoid the "paper dud" risk.
Kumho Complex 1, owned by the presidential couple, is pursuing an integrated reconstruction under the trust method by grouping the Kumho, Cheonggu, and Hanyang apartments and commercial facilities in Yangji Village in Sunae-dong. The Yangji Village integrated reconstruction residents' delegation filed an application with Seongnam on June 30 to designate Daishin Asset Trust as the project executor.
If the buyer completes the ownership transfer registration before Seongnam designates and publicly notifies Daishin Asset Trust as the project executor, the buyer can succeed to association membership. Conversely, if registration occurs after the designation notice, succession of association membership for part of the equity may be restricted, bringing the risk of cash settlement.
There may not be much time left before registration. The application for designation of a project executor for an aging planned city maintenance project typically states a 30-day processing period. Since the Yangji Village residents' delegation submitted the application on June 30, if no supplementary documents or additional reviews are required, the designation notice could come around the end of this month.
In fact, Mok-dong Complex 13 in Yangcheon-gu, Seoul, submitted its application for designation of a project executor on Sept. 11 last year, and the designation notice came on Oct. 2, just 21 days later. However, if documents are insufficient or consultations with related agencies drag on, designation could take several months. A Seongnam official said, "The timing of the designation notice for the project executor has not yet been set."
The buyer is expected to pay the balance after signing the main contract and move quickly to complete the ownership transfer registration. An industry official said, "The buyer likely knew that succession to association membership could be restricted after the project executor is designated and proceeded with the contract," adding, "They will try to expedite the balance payment and registration procedures as much as possible."
According to the Ministry of Land, Infrastructure and Transport's actual transaction disclosure system, on Apr. 29 an apartment of the same size in the same complex recorded a transaction at 3.03 billion won. Asking prices for listings currently on the market are around 3.1 billion won.