Unusual transaction
: President's apartment sale exposes gap between regulation and market reality

President Lee Jae Myung's recent apartment transaction has sparked controversy.

The controversy stems from the fact that ownership was transferred before the full purchase price had been paid, with the seller effectively financing nearly half of the purchase price by lending the buyer the remaining balance and securing the loan with a mortgage.

Typically, buyers who lack sufficient funds to pay the purchase price obtain mortgage loans from financial institutions. But because the current government has sharply tightened mortgage lending to curb housing prices, questions have been raised over whether President Lee himself lent the buyer the funds needed to cover the shortfall.

Generally, real estate buyers and sellers do not know each other, so this type of private financing is highly unusual. The transaction in question is feasible only if the seller is already living elsewhere — as Lee is at Cheong Wa Dae — or is a wealthy individual with ample cash reserves. Lee's transaction is one that most people would neither contemplate nor carry out.

By resorting to "seller financing," a form of private lending, the buyer circumvented the government's rigorous restrictions on mortgage lending. While President Lee's method of selling his apartment was not illegal, it is disheartening that none other than the country's top policymaker was a party to a transaction that bypassed the government's tightly woven web of real estate regulations.

Lee sold an apartment in Bundang, Seongnam, Gyeonggi Province, which he jointly owned with first lady Kim Hye Kyung, for 2.9 billion won ($1.94 million). The contract was signed on July 14, and registration of the transfer of ownership was completed just two days later, on July 16.

In selling the apartment, the Lee couple registered a mortgage lien against the buyer with a maximum secured amount of 1.77 billion won. Considering that financial institutions generally set the maximum claim amount secured by a mortgage at about 120 percent of the loan amount, the Lee couple is estimated to have lent the buyer 1.4 billion to 1.5 billion won.

Bundang is a designated land transaction permit area where mortgage loans for apartments valued at more than 2.5 billion won are capped at 200 million won.

The remaining balance is reportedly scheduled to be paid at the end of October.

The unusual practice of transferring ownership before receiving the remaining balance stems from various regulatory constraints, including reconstruction restrictions, land transaction permit area rules, and the Housing Lease Protection Act.

The tenant's "jeonse" (lump-sum deposit) lease for the apartment sold by President Lee is due to expire in October. Under normal circumstances, the buyer would pay the remaining balance in October and move in. However, the apartment complex is approaching a critical stage in the reconstruction process.

If ownership is transferred after that stage, the buyer may lose the right to receive a unit in the reconstructed apartment complex and instead become subject to cash settlement. Only if ownership is transferred before that stage can the buyer obtain the right to be allocated a reconstructed unit.

Cheong Wa Dae described the Lee couple's apartment sale as "a step demonstrating the president's commitment to implementing policies aimed at normalizing the real estate market." But it is doubtful how many people will sympathize with a transaction that appears to have circumvented regulations unconventionally.

On Tuesday, President Lee said that "real estate windfall gains obtained through illegal or improper means are the chief culprit undermining national unity," and called for swift measures to increase housing supply and support genuine homebuyers.

However, if even the president has no choice but to circumvent the regulations, no policy measure is likely to be persuasive. The controversy surrounding Lee's recent real estate transaction has laid bare how current mortgage lending and reconstruction regulations are seriously distorting the market.

What is needed now, when policy has failed to keep pace with reality, is not tighter regulations but regulations that are better aligned with market realities.
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