Do as I say, not as I buy: Why Korea’s real estate policymakers are in hot water

A view of Seoul from Mount Namsan in central Seoul on Nov. 18, 2024 [YONHAP]

 
[EXPLAINER] 
 
Senior policymakers shaping Korea’s real estate policies have come under intense criticism for using the very property acquisition tactics their regulations were meant to curb.
 
Former First Vice Land Minister Lee Sang-kyeong was forced to resign over his acquisition strategy, while financial watchdog chief Lee Chan-jin had to sell one of his apartment units, as their holdings sparked controversy.
 
Since taking office in June, the Lee Jae Myung administration has significantly tightened real estate policies for both Koreans and foreigners, expanding regulated areas and slashing borrowing capacity to cool the overheated housing market.
 
But the policies — rolled out in three phases in a matter of just four months — have been accused of shutting the door on working-class homebuyers while severely restricting housing investment.
 
The backlash has only intensified amid growing public resentment over perceived double standards and the widespread belief that real estate is the only viable path to building wealth in Korea.




How did policymakers amass their wealth, which is now the target of their own regulations?
 
High-ranking officials were found to have purchased homes by leveraging their tenants’ jeonse (lump-sum deposit), which can cover more than 50 percent of an apartment’s value in Seoul.
 
This strategy — essentially borrowing several hundred million won interest-free — is often referred to as “gap investment,” since owners only need to put up the difference, or gap, between the apartment’s total price and their renter's deposit in order to purchase the unit. If the apartment rises in value, which is likely during a booming housing market, then the owner quickly makes money on their investment. This is precisely the type of housing purchase that the current Lee administration seeks to curb, citing it as a key speculative factor driving inflated housing prices in Korea, especially Seoul.
 
 

Land Minister Kim Yun-duk watches a video on Oct. 29 featuring the now-resigned First Vice Land Minister Lee Sang-kyeong, in which he made the controversial remark that people should hold off on buying houses until the market cools. [NEWS1]

 
How did their double standards on real estate policy work out for them?

In October, the former first vice land minister Lee Sang-kyeong resigned amid controversy over his gap investment in an apartment in Korean IT hub Pangyo in Gyeonggi. Last year, he bought a unit costing 3.35 billion won ($2.36 million), which he financed with 1.48 billion won from a tenant’s deposit. Public outrage intensified when he then recently advised people on a YouTube appearance to hold off on buying homes until the market cools.
 
Financial officials have also faced criticism for similar purchasing methods, and were heavily grilled during the recent parliamentary audits.
 
In 2013, Financial Services Commission Chairman Lee Eog-weon bought an apartment in affluent Gangnam, southern Seoul, for 850 million won, financing it with a tenant’s deposit. That unit is now worth over 4 billion won.
 
Financial Supervisory Service Gov. Lee Chan-jin was also accused of owning two apartments in Gangnam, sharply contradicting the Lee administration’s policy discouraging multiple home ownership. He eventually sold one unit after sparking further backlash by saying he would pass it on to his child — infuriating cash-strapped young people struggling to buy a home.
 

 
 
Is this a one-off move, or part of a recurring playbook used by past administrations?

Such double standards in real estate policy have persisted across administrations, with some officials actually choosing their personal property over their public roles.
 
In 2020, Kim Jo-won, the former Senior Secretary for Civil Affairs, resigned after controversy arose over his ownership of two apartments — one in Gangnam and another in the Songpa District — amid pressure to sell one of the units. His personal real estate holdings stood in stark contrast to the Moon Jae-in administration’s policy aimed at curbing multiple home ownership and deterring housing speculation.
 
Gangnam, Seocho and Songpa — often referred to as the ‘three Gangnam districts’ — are collectively known for their high apartment prices.
 
In 2018, former Blue House policy adviser Jang Ha-sung similarly angered the public when he remarked that ‘not every citizen has to live in Gangnam,’ despite himself owning a residence in the Songpa District.
 
 
How do such behaviors influence public perceptions of real estate purchase strategies?

Such double standards on their policy and personal behaviors have only strengthened ordinary people’s belief that real estate is the key to building wealth in Korea, and that it can be done through gap investment, according to Kim Jin-yoo, a professor of Urban Transportation Engineering at Kyonggi University and the president of the Korea Real Estate Analysis Association. 
 
“Even though they’re people with plenty of information and money, they didn’t buy homes just with their own cash. They made full use of every possible means — taking out large jeonse and getting loans. Naturally, when the people who are supposed to be the experts and most informed in this field act that way, ordinary citizens will think that’s the shortcut — the most efficient way to build their assets,” Kim said.
 
 

Financial Supervisory Service Gov. Lee Chan-jin speaks in the parliamentary audit in the National Assembly in Yeouido, western Seoul, on Oct. 21. [NEWS1]

 
Why do they still invest in apartments in these affluent districts despite the significant damage to their public image?
Apartment prices — particularly in Gangnam, Seocho and Songpa — have surged over the past few decades. Demand in these districts has been especially strong, as they offer a concentration of prestigious schools, well-developed infrastructure such as major department stores and hospitals and excellent transportation networks which serve as key hubs for commuters, given the dense cluster of major companies located there.
 
Despite high rents, parents motivated by educational zeal often move into these districts just in time for their children to start school — not only to secure admission to prestigious schools but also to take advantage of the densely clustered cram schools in Daechi-dong, Gangnam. Also, major conglomerates, including Samsung Electronics and Hyundai Motor, have offices in one of these districts, while the Seocho branch of Shinsegae Department Store is the highest earning department store nationwide. 
 
 
Residences there must be very expensive. How much are buyers paying these days?

The average apartment sale price in September stood at 2.75 billion won in Gangnam, 2.69 billion won in Seocho and 2.18 billion won in Songpa — far above the nationwide average of 485.8 million won, according to data from the Korea Real Estate Board.
 
The price growth in these districts has also been particularly steep over the past decade. Apartments in Gangnam have soared 106.06 percent since October 2015, while those in Seocho jumped 86.76 percent and Songpa up 108.07 percent in the same period — much higher than the 26.54 percent average growth of apartments nationwide over the same 10 year period, according to KB Land data.
 
So on top of all the well-established infrastructure, residence in the three districts have also served as a reliable investment asset, making them an ideal choice for those seeking both a high-quality living environment and steady price appreciation — though effectively reserved for the wealthy, with government regulations only making them further out of reach for the average person.
 

BY JIN MIN-JI [jin.minji@joongang.co.kr]