After the Sudden "Boneless Apartment" Incident: Demands for Increased Construction Costs due to Rising Prices.

In the current situation where construction projects are facing delays in South Korea, the primary issue at hand is construction costs. Construction companies are emphasizing the detrimental impact on project profitability due to uncertainties in the real estate market and rising construction costs. As a result, these construction firms are calling for relaxed regulations on consumer loans, such as real estate project financing (PF) guarantees, and the debt service ratio (DSR).

 

Currently, the construction industry faces challenging circumstances due to rising prices and uncertainties in the real estate market.

 

A survey by Maeil Business Newspaper on the poor construction performance of the top 10 construction companies revealed that the most significant problem is related to construction costs. Large construction companies find themselves unable to commence construction, even if they have secured contracts, due to delays in negotiations over construction costs with their clients. This cost escalation has led construction companies to face difficulties in negotiations with executing agencies for projects they have undertaken. Moreover, disputes between construction companies and associations regarding apartment construction costs have increased, resulting in contract terminations.

 

Construction companies have particularly highlighted that the increasing construction costs have significantly diminished the feasibility of projects in regional areas. Housing projects secured this year have been very limited, and the real estate market in regional areas, especially, is stagnant due to the sharp rise in construction costs.

 

Construction companies stress the importance of incorporating improvements in the system related to construction costs into the current supply measures. Given the long period between securing a contract and commencing construction in the construction industry, the inflation rate for this period in recent years has far exceeded expectations. There is a growing argument for the need for reasonable construction cost estimation, and opinions have been raised about the necessity of establishing a standard mediation plan for construction cost escalation, reflecting price increases.

 

On the other hand, the executing agencies, who are the main entities behind housing projects, argue that various measures such as relaxation of PF loan standards and DSR regulation need to be implemented to stimulate housing supply. According to a survey by the Korea Housing Association, member companies consider "relaxing loan regulations, property taxes, transfer taxes, etc." as necessary measures to activate housing supply. However, the feasibility of these measures seems low, given the government's difficulties in implementing policies that boost demand.

 

Currently, the construction industry faces challenging circumstances due to rising prices and uncertainties in the real estate market. The issue of construction costs is one of the critical challenges that require close collaboration and system improvements between construction companies and the government. It is essential for the government and the industry to work together to overcome the difficulties faced by the construction sector and contribute to the continuous stabilization of the real estate market.