Hideous housing fraud – The Korea Times

“I’m sorry, Mom… but please send me 20,000 won ($15).”
“I’m sorry, Mom… Please send me 20,000 won.”

That’s the message left by a victim of a home rental scam before committing suicide recently.
This is the message a recent victim of charter fraud left before taking his own life.

The man in his 20s was so squeezed that he couldn’t even pay for water and gas. His wallet contained only 2,000 won. Two other young people facing the same predicament have taken their own lives.
This man in his 20s was financially tight to the extent that he could not even pay for water and gas. The wallet contained only 2,000 won. Two other young men in the same predicament also took their own lives.

These three were the casualties of a rental scam masterminded by a 60-something known as the “Building King” who is now in jail. Led by the Building King, a group of fraudsters bought 2,700 flats with bank loans, swelled their prices by conspiring with brokers and leased the mortgaged homes at higher prices, raking in 12.5 billion won.
The three were victims of a charter scam orchestrated by a 60-year-old known as “The Villa King” who is now in prison. The fraudulent gang, which bought 2,700 houses with bank loans, led by “Villa King”, colluded with real estate agents to inflate house prices and steal 12.5 billion won by renting houses held as collateral at a higher price.

The fraudsters were unable to repay their bank loans as housing prices plunged amid the prolonged property market slump. Some 690 homes have been auctioned off. Little money is left after the homes are sold at auctions and bank loans are paid off. Tenants are evicted from their rented homes, unable to retrieve their deposit money. It was this dire situation that drove the victims to take their own lives. About 2,000 more homes will be auctioned off to repay the bank loans their owners used to buy them.
As house prices plummeted as the real estate market slump lasted, a gang of scammers could not repay their bank loans. About 690 homes went up for auction. After selling the house at auction and paying off the bank loan, he has little money left. Tenants will be evicted from their rental units and will not be able to get their deposit back. This horrific situation forced the victims to take their own lives. About 2,000 units will be auctioned off by homeowners to repay bank loans used to purchase the home.

Behind all this is a unique home rental system prevalent in Korea. Known as “jeonse,” tenants do not pay monthly rent in this leasing scheme, but provide landlords with a deposit, called key money, worth at least half or more of the property’s value. Landlords keep the returns from their investment and repay the lump sum when the tenancy is renewed or terminated after two years.
Behind the case is a unique housing rental system common in Korea. In this type of rental, known as “chonsei,” the lessee pays the landlord a deposit equal to at least half of the house’s value rather than paying the monthly rent. The landlord collects the return on the investment and repays the deposit in a lump sum when the lease is renewed or terminated after two years.

Jeonse spread widely as a form of private financing, as Korea’s rapid industrialization in the 1970s relocated farmers to cities. It was difficult for working-class families to borrow from banks, and interest rates were nearly 20 percent per annum then. The system had some positive sides for cash-short landlords and homeless tenants. A half-century later, various side effects occurred, such as deposit money exceeding home prices amid the sagging property market ― and the ongoing housing fraud.
Jeonse became widespread as a form of private finance in the 1970s as farmers moved to cities due to Korea’s rapid industrialization. It was difficult for middle-class families to get loans from banks, and at that time, the interest rate was close to 20%. The jeonse system had positive aspects for cash-strapped landlords and homeless tenants. Half a century later, while the real estate market is stagnant, various side effects such as deposits for jeonse that exceed the house price and continuing housing fraud are appearing.

On Tuesday, tens of thousands of such tenants gathered to mourn the dead and launch a national organization to deal with the “social disaster.” They called on the government to present fundamental solutions. We agree. The fraud was possible due to the collaboration of many groups ― swindlers, amoral real estate agents, cursory property appraisers and risk-blind lenders. On top of them were financial supervisors and property market overseers, who should have clogged the loopholes of the loose rental system, which cannot stand without trust among all parties involved.
On Tuesday, tens of thousands of affected tenants gathered to commemorate the dead and launched a national organization to address the “social calamity.” They urged the government to come up with a fundamental solution. I agree. The charter scam was possible because a large group of con artists, unscrupulous real estate agents, formal real estate appraisers, and risk-aware creditors worked together. Behind them were financial supervisors and real estate market supervisors who had to close loopholes in a loose leasing system that could not be maintained without trust between the parties.

It would be unfair to say the government has done nothing. After the first signs appeared five months ago, it lowered the lending rate for crunched tenants and provided temporary dwellings for evictees. However, the new bank loans were beyond the reach of most tenants due to strict terms and the alternative homes were too small and far away.
It would be unfair to say that the government was on its hands. For renters whose lives have been shattered since the first signs appeared five months ago, it has lowered lending rates and provided temporary housing to those facing eviction. But the new bank loans were inaccessible to most tenants because the terms were stringent and the replacement homes were too small and too far away.

Moments before the launch of the tenants’ association, the government belatedly asked lenders to put off auctions for a few months. But it was a step to earn time and prevent further tragedy. The policymakers must find ways to return deposits to tenants by, for instance, having state financiers buy these homes and turn them into public leases.
Ahead of the launch of the victim committee, the government belatedly asked creditors to delay the auction for several months. However, it was a measure to buy time and prevent further tragedy. Policy makers will need to find ways to return deposits to tenants, such as buying these homes with state capital and converting them into public rentals.

In the long term, the government needs to rebuild the home lease system by phasing out jeonse and shifting to monthly rentals. In the longer term, the establishment must make a society where homes are not something that must be had by all means, but places in which to live.
In the long term, the government should reorganize the housing rental system by gradually abolishing jeonse and converting it to monthly rent. In the longer term, vested interests need to create a society in which the home is a place to live in, not something to own.

April 20, 2023 (Thursday) The Korea Times editorial

KEY WORDS
■ penniless, very poor
■ take one’s own life commit suicide
■ mastermind (planning complex tasks) commanding[조종]do
■ evict (from a house or land)
■ retrieve[회수하다]
■ terminate to end, to end
■ sag is weakened
■ fraud Fraud (crime)
■ block clog
■ phase out phase out

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