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Jamsil residents accused of fixing apartment prices

Homeowners are encouraging their neighbors not to sell
Dec 30,2017
Left: A notice posted in an elevator last weekend at the Jugong 5 Danji apartment complex in Jamsil, southeastern Seoul, encourages residents not to sell their apartments below a certain price. The document was gone on Thursday. Right: A bird’s-eye view of the Jugong 5 Danji complex. [KIM KI-HWAN, JOONGANG ILBO]
Despite its age, the Jugong 5 Danji apartment complex in southern Seoul, first built in the late 1970s, remains one of the most popular plots of real estate in the country, thanks to its proximity to Jamsil Station on subway lines No. 2 and 8.

This year, the complex received government approval for redevelopment, boosting its popularity, and some home owners are taking advantage of the hype by waiting until they see the right price to sell. An 82-square-meter (883-square-foot) home sold for well over 1.8 billion won ($1.7 million).

A 43-year-old resident surnamed Kim is a member of the Jugong 5 Danji redevelopment association, a group of apartment owners who decide on major issues regarding the redevelopment project. Last week, he saw an unusual notice on an elevator wall that read “Campaign headquarters to secure Jugong 5 Danji’s housing price.”

“Bid rigging in Gangnam [where Jamsil is located] is raising home prices by 100 million won every week,” the noticed read. “Our complex, too, pledged not to sell our homes at prices beneath a certain level.”

It attached a specific guideline for when to sell a home: apartments of 119 square meters were advised to be sold above 2 billion won. The price went up to at least 1.95 billion won for a 115-square-meter unit and 1.9 billion won for a 112-square-meter unit.

“Nobody will want to sell their home at a low price, but I never knew price fixing was an option for real estate deals,” Kim said.

Another association member said, “Some of our members might have put up the notice, but the association is not directly related to the case.”

This isn’t the first time apartment owners have been caught fixing prices. Such action is typically led by groups of several homeowners working together to post notices online and inside the complex persuading others not to sell their apartments at a low price. Some even pressure real estate agents not to offer low bids.

Still, the price fixing at the Jugong 5 Danji is unusual considering the practice is usually more prevalent in neighborhoods where housing prices are stagnant. The Jugong 5 Danji, on the other hand, has only seen prices moving up this year.

A similar notice was seen on the elevators of an apartment complex in Dangsan-dong, Yeongdeungpo District, western Seoul in October. The homeowners’ association encouraged residents to sell high, using the market price of neighboring complexes as a reference.

“Apartment A in Dangsan-dong is going for 880 million won, and Apartment B is at the 700 million won level,” the notice read. “Ours is worth 578 million won. […] Do not conduct deals with real estate offices that undervalue our homes.“

The same happened in a complex at the Wirye New Town in southern Seoul in September. Notices warned residents to refrain from “autonomously writing in low prices” for their apartments. After that, an 84-sqaure-meter home in the complex sold for 800 million won, but it still remains relatively low compared to neighboring apartments.

“Among residents, there was a shared sentiment since last year that our homes were undervalued,” said a 56-year-old Wirye resident surnamed Park. “It’s wrong to criticize homeowners for ‘bid rigging’ when all they’re trying to do is receive a decent price.”

Price fixing in real estate dates back to the mid-2000s. The Roh Moo-hyun administration had just announced hard-line policies against real estate speculation, but it didn’t stop homeowners from colluding at a time when home prices were going through the roof.

The Fair Trade Commission and Ministry of Construction and Transportation (now the Ministry of Land, Infrastructure and Transport) conducted a joint investigation on the practice and issued orders for real estate information providers to remove apartment prices for a month at complexes caught price fixing.

But it remains difficult to crack down on collusion among residents because it does not meet the legal definition of rigging.

“According to the fair trade law, the agent of price fixing has to be an enterprise, so there are no grounds to punish homeowner associations or other groups formed by residents,” a source at the Fair Trade Commission said. “It’s also hard to clearly define the damage caused by their actions.”

Whether price fixing at the Jugong 5 Danji complex will have an effect on the apartments’ market price is questionable. Nowadays, every real estate transaction is made public on the internet, and the rise of social media has made it easier for home buyers to exchange information on prices.

“Artificial efforts may prompt or support a short-lived price increase,” said Park Won-gab, a senior real estate adviser at KB Kookmin Bank, “but this cannot go against the rules of supply and demand in the long term, so the effect won’t last long.”

“The movement is confined to a certain region,” an official at the Land Ministry said, “so we’re just monitoring it for now, but if we feel this might spread to other districts, we’ll start making moves toward implementing countermeasures.”

BY KIM KI-HWAN AND SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]