Recently, construction costs have risen, leading to some apartment remodeling projects in Seoul reaching construction costs of 10 million won per pyeong. As construction costs skyrocketed, work has halted, prompting the Seoul city government to mediate conflicts or instances where construction companies withdraw from projects.
According to the remodeling industry on the 19th, the remodeling union of Cheongdam Geonyeong in Gangnam District, Seoul, has completed a contract amendment with its construction company, GS Engineering and Construction, to increase the cost from 6.87 million won to 11.37 million won per pyeong. The contribution amount for union members has been set at approximately 570 million won, which is higher than the previous highest contribution of about 400 million won recorded by the Gaepo The Sharp Trie in Gangnam District.
The apartment remodeling project is carried out by maintaining the existing apartment structure and improving the living environment and increasing the number of units through vertical and horizontal expansion. Compared to reconstruction, remodeling has lower regulatory barriers and a shorter construction period, making it preferable in aging apartment complexes where securing profitability is difficult due to high floor area ratios. It is typically judged that if a complex's floor area ratio is below 180%, reconstruction is more suitable, whereas if it is above 200%, remodeling is deemed more appropriate.
However, since it involves dismantling part of the structure while maintaining the existing framework, if the conditions of the structure at the establishment differ from the plans prepared before demolition when removing interior finishing materials after construction begins, design changes may be necessary, leading to additional expenses. This is where conflicts over construction costs arise.
Additionally, as construction costs have risen significantly across the construction sites, remodeling costs have also increased. According to the Housing Environment Research Institute, the average direct construction cost per pyeong for remodeling in 2021 was 5.934 million won. This soared to an average of 6.86 million won in 2022 and 7.713 million won in 2023. While statistics for this year have not yet been compiled, they are expected to rise compared to last year.
In fact, this year, many projects have appeared with construction costs ranging from 8 million to 9 million won per pyeong. The Jamwon Riverside remodeling union selected Samsung C&T Corporation for construction at a cost of 8.65 million won per pyeong. The Ichon Woosung remodeling union in Yongsan District signed a preliminary contract with SK Ecoplant at 9.32 million won per pyeong last November.
Due to the rise in construction costs leading to conflicts, some units have changed their construction companies. Ichon Hyundai in Yongsan District established its union in 2006, but due to resident conflicts and disputes over rising construction costs, the contractor changed from Hyundai Engineering & Construction to POSCO Engineering & Construction, and then again to Lotte Engineering & Construction in 2020. Subsequently, in October, conflicts arose between the contractor and the union regarding adjustments to the construction period and increases in construction costs, with the contractor warning of a work stoppage, prompting the Seoul city government to deploy a coordinator for conflict mediation.
In May, Hanwha Construction informed the Maehwa Village Phase 2 remodeling union in Seongnam City, Gyeonggi Province, of their withdrawal from the project. This came eight months after being selected as the preferred bidder in August of last year.
A representative from a major construction company noted, “Unlike reconstruction projects, remodeling becomes extremely difficult to progress when market conditions are poor or construction costs rise,” and added, “The occurrence of additional expenses due to design changes is inevitable, so conflicts frequently arise in areas like Hangang River and Gangnam, where additional construction costs can be borne. As a result, construction companies hesitate to bid.”
Experts explain that conflicts related to construction costs also occur in reconstruction projects, indicating that rather than focusing solely on construction costs, policy support such as regulatory relaxation is necessary. Previously, as the Special Law on Maintenance and Support for Old Planned Cities was promoted, if selected as a leading district for the first new town, benefits such as relaxations or exemptions of safety inspections for reconstruction, and increases in floor area ratios are provided. Additionally, there is a proposed bill in the National Assembly to abolish the excess profit recovery system for reconstruction. In contrast, there are currently no regulatory relaxations or benefits related to remodeling. If this situation continues, there are concerns that promoting remodeling projects will become difficult.
Song Seung-hyun, CEO of City and Economy, stated, “There are consistent issues regarding additional contributions and construction costs in reconstruction projects as well. However, while efforts have been made to improve the business environment through regulatory relaxation in reconstruction, remodeling lacks such regulatory relaxation, leading to concerns over the emergence of units that may need to shift or withdraw from projects.”