real estate
Entered 2024.03.11 18:28 Modified 2024.03.11 18:28 Ground A1
Construction cost per 3.3㎡ skyrockets to around 10 million won… Brake maintenance business
Raw material and labor costs rise and the construction period increases to 52 hours a week.
Construction companies also step out due to lack of profit… “I don’t see a breakthrough.”
At Jamsil Jinju Apartments in Sincheon-dong, Songpa-gu, Seoul, internal conflict within the union is growing due to the recent construction cost issue. Due to rising raw material prices and labor costs provided by Samsung C&T, construction costs have soared to around 10 million won per 3.3㎡ this year, putting reconstruction and redevelopment sites across the country on alert. In some sites, the project was in danger of being canceled because the contribution was set higher than the existing apartment price. The factors that increase construction costs, such as strengthening quality and safety and shortening working hours, are increasing, making it difficult to find a breakthrough on site.
According to the maintenance industry on the 11th, the reconstruction promotion committee of Namseoul Lucky Apartment (986 households) in Geumcheon-gu, Seoul recently received an estimate from a reserve trust company that the reconstruction contribution for members could reach up to 900 million won per household. It is pointed out that the problem was that the estimated construction cost increased to 9.5 million won per 3.3㎡ as the promotion committee pursued upgrading. It is 63% higher than the construction cost of ‘Raemian One Bailey’ in Banpo-dong, Seocho-gu, which moved in this year (5.83 million won per 3.3㎡). The construction cost of Hongje District 3 in Seodaemun-gu is also the driving force behind the project. The construction cost, which was estimated at 5.12 million won per 3.3 m2 at the time of selecting a construction company, soared to 8.98 million won at the end of last year. Early this year, the construction company proposed 8.3 million won per 3.3㎡, but there is still noise inside the union.
Construction companies also seem to be withdrawing from receiving reconstruction orders. The price of major materials such as cement and rebar has risen by about 50% in the past three years, and additional costs are incurred due to the deployment of safety management personnel in accordance with the enforcement of the Severe Accident Punishment Act, the 52-hour workweek, and the ready-mix concrete Saturday off system, making it difficult to make a profit from construction. Because.
There are a series of cases where reconstruction associations, which have been known for their high standards, are raising construction costs and re-bidding. The Mapo 1-10 District Redevelopment Association, Mapo-gu, began re-bidding to select a construction company on the 29th of last month. The construction cost was proposed at 10.5 million won, which is higher than last October (9.3 million won per 3.3㎡). For the 4th Jamsil Wooseong project in Songpa-gu, where the selection of a construction company was rejected twice, the cooperative recently increased the construction cost from 7.6 million won to 8.1 million won per 3.3㎡ and re-announced it. An executive in charge of design at a large construction company said, “In the past, the apartment construction period was about 30 to 36 months, but due to the influence of shorter working hours and stronger safety management, it often exceeded 40 months.” “A red light also came on,” he pointed out.
Reconstruction hit by ‘construction cost shock’… Seoul Yolkland also continues to be abandoned for development
Recently, there have been a series of cases where reconstruction complexes in Gangnam, Seoul, have collapsed due to construction cost issues. This is because construction costs are soaring to the point where business feasibility is hindered. The price of major construction materials such as rebar and cement has risen by about 50% in the past three years, and indirect costs due to the 52-hour workweek and strengthened safety standards are also increasing. Because of this situation, reconstruction and redevelopment sites are not separate battlefields. Conflicts between construction companies, which suffer losses if construction costs are not increased, and union members, who must pay hundreds of millions of won in additional contributions per household, are becoming more acute. The apartment supply schedule is also being pushed back one after another due to construction halts due to conflicts over construction costs and legal battles.
○Average construction cost increased by 43% in 3 years
According to the Housing Environment Research Institute on the 11th, the average construction cost for urban maintenance projects (reconstruction and redevelopment) nationwide last year was 6.875 million won per 3.3㎡. The construction cost, which was around 4 million won until 2020 (4.803 million won), has increased by 43% in three years.
The surge in construction costs began due to a combination of factors such as increased liquidity, a surge in exchange rates, and the Russia-Ukraine war following the COVID-19 pandemic. In particular, it is analyzed that the burden of construction costs has intensified as the cost of construction materials, which accounts for about 30% of the construction cost, has risen. According to the Korea Construction Industry Research Institute, over the past three years (December 2020 to December 2023), the construction materials index increased 35.6% from 106.4 to 144.2. Rebar prices rose 56.6% and cement rose 46.8% during the same period. Park Cheol-han, a researcher at the Construction Industry Institute of Korea, said, “As supply and demand problems of core construction materials such as rebar and cement repeatedly occurred, about 63% of the construction companies ranked in the top 100 in the construction capability evaluation had to suspend work.” Labor costs also rose sharply with the minimum wage increase in 2017. According to the ‘Construction Industry Wage Survey’ conducted by the Construction Association of Korea, the average daily wage of construction workers as of January this year was 270,789 won, up 16.83% from three years ago (231,779 won). The problem is that the factors that increase construction costs are increasing. While raw materials and labor costs have been the main cause of rising construction costs, the burden is increasing recently due to various regulations such as strengthening safety standards and post-floor noise certification system. At construction sites, it is estimated that the rate of increase in construction costs due to changes in laws and regulations such as the Severe Accident Punishment Act and the 52-hour workweek and external environmental factors will exceed 15%. The industry predicted that the construction period would increase by about 3 to 6 months from the existing 36 months, based on 1,000 households on the 29th floor. An executive at a large construction company said, “The total construction period has increased by about six months due to shortened working hours and the implementation of the ready-mix concrete Saturday holiday system.”
○ As the contribution burden increases, “We will not rebuild”
The rapid increase in construction costs is becoming a detonator for the overall urban redevelopment project. The complex in the early stages of reconstruction is in danger of being stranded due to the bombing of share costs. The Sanggye Jugong Complex 5 reconstruction association in Nowon-gu, Seoul was notified of an additional contribution (KRW 500 million) exceeding the market price (KRW 460 million) based on an exclusive area of 31㎡. The owner of an 84㎡ exclusive apartment in Yongsan-gu has to pay an additional 480 million won to receive the same space. In Namseoul Lucky Apartment in Geumcheon-gu, Seoul, an estimated contribution of up to 880 million won per household was set for union members due to restrictions on floor area ratio and the promotion of high-end complexes.
In places where the project has progressed to some extent, conflicts over construction costs between the construction company and the union are running parallel. Construction of the Daejo District 1 redevelopment project in Eunpyeong-gu was halted due to problems with increased construction costs. Differences of opinion arose among union members as the construction company requested a 28% increase in construction costs compared to the time of selection in 2017. In this process, the construction start and general sales schedule were postponed and construction costs were not paid, so the construction site has been at a standstill since early this year.
Some predict that the construction cost issue will hinder the first new town reconstruction project in the metropolitan area in the future. It is difficult to find a reconstruction contractor in Seoul, but the threshold for selecting a contractor for the first new city may be higher. Noise is already occurring in some complexes of the first phase of the new city. Daewoo Sunkyung members of Magnolia Village Complex 2, Dongan-gu, Anyang, Gyeonggi Province, who are pursuing a remodeling project, were recently notified of an estimated contribution of 479 million won (based on 58㎡ exclusive). It is twice the size of the 2021 estimate (286 million won). The chairman of a reconstruction promotion committee in the metropolitan area said, “During the consultation process with the construction company, I heard that next year’s construction cost will exceed 10 million won per 3.3 m2,” and added, “It is not even possible to start the project.”
Reporter Shim Eun-ji/Yoo Oh-sang summit@hankyung.com
2024-03-11 09:28:22
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