The South Korean government is set to revise its apartment management system to reduce corruption and opaque contracting practices in the execution of management fees. The Ministry of Land, Infrastructure and Transport announced that it will eliminate the exception that allowed properties to forgo external accounting audits with resident consent and will also limit the use of direct contracts.
According to a report presented to the Special Task Force on Living Costs on May 21, the average management fee for apartments in March was 224,728 won per household, a 2.1% increase from 220,111 won in the same month last year. However, this figure represents a 7.26% decrease from the previous month’s average of 242,316 won. The ministry noted that the rise in labor costs had already been accounted for in January, and seasonal factors contributed to the drop in fees from the previous month.
However, the ministry warned that management fees could rise again after May due to increased use of air conditioning and higher electricity and water consumption as temperatures rise. As of March, the breakdown of management fees included general management costs of 40,903 won, security costs of 27,181 won, cleaning fees of 18,657 won, and electricity charges of 49,001 won. The long-term maintenance fund was set at 22,079 won.
From March 25 to April 9, the government conducted inspections of management fee assessments and executions across 19 apartment complexes in 16 cities and provinces. The inspections targeted properties that failed to comply with management fee disclosure regulations or did not release the results of their 2024 accounting audits, as well as those that exhibited multiple anomalies in the early warning system. The inspections resulted in 38 instances of on-site guidance and corrective measures, along with 19 pre-notices for fines.
Major violations included failing to disclose management fee details or construction and service contracts for extended periods, not maintaining management fee records and supporting documents, improperly executing management fees, and engaging in direct contracts despite being subject to competitive bidding. Under current law, violations of disclosure obligations, failure to maintain accounting documents, and inappropriate direct contracts can result in fines of up to 5 million won. Improper calculation, assessment, or execution of management fees can lead to fines of up to 10 million won.
To prevent misconduct by resident representative councils and management entities, the government plans to eliminate the exception for accounting audits. Currently, mandatory managed apartments must undergo annual audits, but those with fewer than 300 units can skip the audit if more than half of residents agree in writing, while those with more than 300 units require two-thirds approval. The government aims to abolish this provision to prevent the evasion of audits. Discussions on similar measures to eliminate exemptions from external audits have also been raised in the National Assembly.
Sanctions against housing managers involved in management fee corruption will also be strengthened. The government is proposing to apply stronger penalties, including revocation of qualifications, for those who cause financial harm to residents through intentional or gross negligence or who receive improper benefits.
Criminal penalties will also be increased. Currently, failing to maintain or falsifying records can result in up to one year in prison or fines of up to 10 million won, but this will be raised to a maximum of two years in prison or fines of up to 20 million won. Refusing to allow access to records or provide them will see penalties increase from a maximum fine of 5 million won to up to one year in prison or fines of up to 10 million won. Additionally, fines for failing to provide management fee details will be raised from a maximum of 5 million won to up to 10 million won.
The contracting process for construction and services will also be revised. The government plans to limit direct contracts to urgent situations such as natural disasters or safety incidents, or when specific expertise is required. Insurance and general goods will be excluded from direct contracting. Existing contracts for cleaning and security services will also be subject to restrictions based on performance evaluations.
Requirements for limited competitive bidding will be tightened. The Ministry of Land, Infrastructure and Transport has noted that excessive restrictions on participation qualifications undermine the principles of competitive bidding and contribute to rising management fees. In cases where limited competitive bidding is justified by technical capabilities, prior consent from residents will be required for patents or new technologies necessary for construction and services. The ministry cited a case from January 2023 in which a painting and waterproofing contract worth 2.1 billion won was awarded through collusion among companies due to restrictions on capital and technical capabilities.
Next month, the ministry plans to revise guidelines for selecting housing managers and contractors and will propose amendments to the Apartment Management Act. If necessary, additional investigations and audits regarding management fee assessments and executions will be conducted, and administrative procedures for imposing fines will be initiated through local governments.
* This article has been translated by AI.
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