DP's Lee Nak-yon faces backlash over 'gap investment'

Rep. Lee Nak-yon of the Democratic Party [YONHAP]

Rep. Lee Nak-yon of the ruling Democratic Party (DP), former prime minister of the Moon Jae-in administration, faced criticism on Friday for having made a “gap investment” in defiance of a government campaign when he purchased an apartment in central Seoul shortly after his election victory in April.

The National Assembly’s Public Service Ethics Committee on Friday made public a report of properties owned by lawmakers elected in the April general elections. According to the press release, information about properties owned by 175 lawmakers who newly joined the National Assembly, including 151 first-term representatives, was disclosed.

According to the report, Rep. Lee purchased an apartment in Naesu-dong of Jongno District, central Seoul, at the price of 1.75 billion won ($1.48 million) in May. He and his wife are the co-owners of the property.

Because a tenant was already living in in the apartment with 1.2 billion won of jeonse, or long-term deposit rent, Lee only paid 550 million won for the property and became a landlord.

He is currently living in a smaller apartment in Jongno District. He used to live in Seocho District of southern Seoul, but sold his apartment for 1.95 billion won in February and moved to Jongno in order to register his candidacy for the constituency in the April 15 general elections. At the time, he rented the home with a jeonse deposit of 900 million won.

After the public started criticizing Lee for having made a “gap investment,” an aide to Lee told local media that Lee had no intention to profit from the purchase. The aide said Lee will eventually move into the apartment that he purchased.

Gap investment is a unique form of real estate purchase in Korea based on the jeonse system. It allows an investor to own a property with little money by using the gap between the actual purchase price of a home and the jeonse deposit.

For example, an investor only has to pay 50 million won when purchasing an apartment if the market value is at 400 million won and the jeonse deposit is 350 million won. The investor takes on the burden of returning the jeonse deposit when the tenant moves out, but if the apartment price skyrockets in that time, the investor can still make a profit.

Gap investment became popular in recent years as the housing market is hot. Profiting from this scheme requires housing prices to go up continuously, and the Moon administration has been battling a war against gap investors.

Lee served as the prime minister from May 2017 till January this year.

Land Minister Kim Hyun-mee has repeatedly said gap investments by the cash-rich is the main problem of the real estate market. She said even if you own one home, you are essentially making a gap investment if you don’t live in it and rent it with an expectation to earn profit from rising property prices. She also said that people must sell houses unless they actually live in them.

Meanwhile, the National Assembly’s report on the lawmakers’ assets show that Rep. Baek Jong-hean of the United Future Party (UFP) owns 30 homes — the largest number among the 175 lawmakers.

Baek, representing Geumjeong District of Busan, owns 29 units of officetel — dual-purpose commercial and residential units — and one apartment. The 30 homes are worth 1.4 billion won in total.

Rep. Kim Eun-hye of the UFP was the richest in real estate properties. She reported a total wealth of 21 billion won, including her husband’s ownership of a building in Daechi-dong, Gangnam District of southern Seoul, worth 15.8 billion won.

Rep. Kim Hong-gul of the DP owns three homes, worth 7.5 billion won in total. Kim is the third son of the late President Kim Dae-jung.

According to the National Assembly data, 175 lawmakers in the report own 230 homes in total. Twenty-four UFP lawmakers own more than one home. The DP has 18 owners of multiple homes, the Justice Party had two and the Open Minjoo Party has one.

Rep. Jeon Bong-min of the UFP is recorded to own the highest amount of wealth. His assets amounted to 90 billion won.

Jeon’s wealth is mostly in stock investments. The first-term lawmaker of Busan’s Suyeong District is a former CEO of a construction company, and he owns 85.9 billion won worth of stakes in construction firms.

BY SER MYO-JA [ser.myoja@joongang.co.kr]