Apartment complex graft rampant

One summer day in July 2010, the management at an apartment complex in Paju, Gyeonggi, notified its residents that their intercoms and CCTV systems were malfunctioning.

The defective products needed to be switched off and would be replaced immediately with “brand new” products, the center said.

Repairmen arrived soon after and visited every household. The tenants were told that the upgrades would prevent similar breakdowns.

But two years later, a resident sensed something was wrong when the intercom, which had just been replaced not long ago, failed to operate properly.

The tenant personally contacted an engineer, who arrived at the scene and dismantled the device. In doing so, they discovered that the product was time-worn and that this specific model had been discontinued in 2005 - five years before they were installed at the complex.

So members of the residents’ committee took matters into their own hands and later determined that the repair company tasked with replacing the devices in 2010 was actually a subsidiary of the apartment’s management company, whose responsibilities included responding to dwellers’ complaints and hiring appropriate people to provide solutions.

The company had not informed the committee that it had hired its own subsidiary to handle the job before the overhaul. Through the scheme, the management company had gained 340 million won ($32 million) worth of insurance compensation, the committee recently told JoongAng Ilbo reporters. “The management company’s subsidiary had received the construction order through a private contract,” a member from the committee said. “We’re stuck in a situation where we might have to spend an additional 340 million won for another all-around repair.”

The 340 million won project, the resident added, was signed off on without a public bidding process or a vote from the residents’ committee. The contract was also drawn up on the same day the project was completed, a giveaway that the operation was fraudulent from the start.

The committee sued the management company and the authorities are currently investigating the matter.

“Apartment management companies are really nothing but a personnel agency,” said Song Ju-yul, the head of a coalition to eradicate apartment corruption.

“Their subsidiaries take responsibility for all the construction services [in the complex],” he continued, pointing out that this practice, long seen as customary, is what prevents management companies from carrying out responsible oversight.

Critics argue that many management companies seem more interested in clinching lucrative security and repair projects, rather than considering what’s best for their tenants.

For residents, the financial impact can be dramatic because they are often stuck paying for poor and sometimes unnecessary services, as well as soaring maintenance costs. “Regulative laws against apartment management companies are weak,” said Kim In-ho, the vice chairman of the Seoul Metropolitan Government, adding that many of them are on a hunt to profit from labor services, which undermines their primary role as supervisors.

Kim also cited data from the Korea Housing Managers Association, further stating that the top 14 apartment management companies - out of the approximately 500 nationwide - are responsible for more than 2.5 million households, which he argued is “too much” for too few businesses.

Compared to the scale of the residences they oversee, their monetary capital is also lacking. Kim noted that the top 14 management companies had an average of about 1.3 billion won worth of financial capital each.

Local governments have their faults in these problems, Kim said, because “they barely know the number of management companies operating in their districts,” when, in fact, officials should go so far as to monitor their working operations.

According to opposition lawmaker Kang Chang-il, four audits carried out by the Seoul Metropolitan Government this year found 254 instances of illegal misconduct, with alternate measures recommended in 95 percent of those cases; only five incidents were reported to the police for a more thorough investigation, and four cases saw offenders slapped with charges.

BY KANG KI-HEON, AHN HYO-SUNG [selee@joongang.co.kr]