National Housing Executives Unfairly Purchased Agency-Built Apartments

Reports indicate that the Korea National Housing Corporation (KNHC) has suffered great losses due to its misjudgment on business feasibility while operating its reconstruction and urban renewal projects. It was also pointed out that moral hazard and managerial misconducts within the organization are prevalent, which allowed KNHC’s executives to unfairly purchase agency-built apartment residences by using inside information.

Han Sun-kyo, a lawmaker of the Grand National Party and a member of Construction and Transportation Committee of the National Assembly, said yesterday, “The KNHC has lost a whopping 28.7 billion won due to its reckless investment in the Hwanho apartment complex reconstruction project (Pohang, Gyeongbuk) and the Euljiro urban renewal project of Jung-gu, Seoul.”

According to materials that were submitted by Rep. Han during a parliamentary inspection of the administration, the KNHC made an agreement with Pohang city in December 1999 that the reconstruction contract for the Hwanho apartment complex would be given to a company that offered the lowest price, but it changed its policy when it signed a formal contract in September, 2002 to a way that was based on the evaluation of candidates’ capability. This led to as much as a 22.1 billion won loss.

Rep. Han pointed out that this loss resulted from miscalculations on business feasibility under which they believed that the cost of construction could be minimized by giving a contract to a company that offered the lowest price.

In addition, the KNHC promoted an Euljiro urban renewal as a joint project with a private company, but no private company wanted to participate in the project. This failure inflicted a great loss on the KNHC because it already spent 6.63 billion won in designing the project.

On the same day, Rep. Lee Nak-yon, a lawmaker of the Millennium Democratic Party, revealed that “from 2004 to the end of August in 2005, 15 executives of the KNHC purchased KNHC apartment housing (worth an estimated 2.912 billion won), and six executives purchased a house construction site (worth an estimated 1.382 billion won) in a improper way.

According to Rep. Lee, even though the KNHC prohibits the apartment housing purchase right from being distributed to its employees at the first day of its announcement of 2001, especially when the apartments are sold on a first-come, first-served basis, the five heads of construction sites, including the Pungdong complex (Goyang, Gyeonggi) and the Bora complex (Yongin, Gyeonggi), signed a contract on the first day.

Lee added, “People who don’t have a house are entitled to purchase apartments built by the KNHC. However, if all the apartments are not purchased, they become available to those who have houses and are then sold on a first-come, first-served basis. In this stage, the employees of the KNHC enjoy unfair privileges.” Lee stressed, “Measures that can prevent such misconduct are urgently needed.”

In-Jik Cho cij1999@donga.com