Large construction companies are actively moving into public housing projects, which have primarily been participated in by mid-sized construction firms. Although public projects lack the revenue potential of private projects, they are analyzed to attract construction firms due to the excellent stability that comes from being driven by government initiatives.
According to the construction industry on the 6th, major domestic construction companies, including Daewoo Engineering and Construction and GS Engineering and Construction, have begun analyzing the business viability to participate in the government-driven private participation public housing construction projects.
Private participation public housing projects involve the Korea Land and Housing Corporation (LH) and construction firms jointly supplying public housing. Construction firms acquire LH public land and then build and sell the homes.
Previously, Daewoo Engineering and Construction formed a consortium with Dongbu Construction, Umi Construction, and Heung-Han Housing Comprehensive Construction, and was selected as the preferred bidder in the private business operator contest for the Public Housing Construction Project in the Pyeongtaek Goduk A-56 block, implemented by the Korea Land and Housing Corporation (LH) on December 24th. Additionally, in the last year's third new city project, the consortium formed with Dongbu Construction and Kyeryong Construction Industry was also selected as the preferred bidder for the Hanam Gyosan A2 block and Namyangju Wangsuk B1, B2, and A3 blocks.
DL E&C also named itself the preferred bidder for the A5 and A6 blocks in Bucheon Daejang, among the third new cities, through a consortium with Kumho Construction and HJ Heavy Industries in June of last year.
An official from a large construction company, Person A, noted, "As the third new city project accelerates, construction firms are assessing risks in their business teams to secure contracts for projects with strong revenue potential among the sites," and added, "Although public projects do not yield much profit, the government pays construction costs promptly, making them highly stable."
He mentioned, "The government plans to pursue a private participation housing construction project with about 10,319 dwellings across 13 blocks in the third new city this year," and added, "In times like these, when the real estate market is struggling and construction firms lack financial capacity, it is advantageous to increase the proportion of public projects in their business portfolio."
The renovation industry is also focusing on public redevelopment as well as private redevelopment. In particular, as public redevelopment construction costs in Seoul rose by more than 50% over the past year, construction firms' interest is intensifying. The anticipated construction costs for public redevelopment projects in Seoul skyrocketed from about 5 million won per 3.3 square meters last year to about 8 million won.
Hyundai Engineering won the contract for the 'Jeonnong Zone 9' public redevelopment project in Jeonnong-dong, Dongdaemun-gu, Seoul on December 22nd of last year. A consortium of Samsung C&T and GS Engineering and Construction also obtained the construction rights for the 'Geoyeosaemaul' public redevelopment project in Geoyeong-dong, Songpa-gu, Seoul in August of last year.
GS Engineering and Construction was selected as the preferred bidder for the 'Jung-Hwa Zone 5' public redevelopment project in Jungnang-gu, Seoul, which is being implemented by LH for public redevelopment, in November of last year. The likelihood of being selected as the construction firm through a general meeting on the 18th to select a joint construction operator is high.
An official from the renovation industry, Person B, stated, "In the past, construction firms tended to shy away from public renovation projects because there were more negotiation procedures required outside the union when public agents were involved," but also noted, "With the lower risks of permits and less need to invest heavily in project funds, and as anticipated construction costs have significantly increased compared to before, construction firms are participating in public redevelopment projects without hesitation."
Although these are not public projects, the implementing companies are promoting new businesses centered on land that the government sells through bidding. In particular, they plan to secure prime locations among the multi-family housing sites supplied through competitive bidding by public institutions like LH.
The representative of the implementing company, Person C, commented, "Among the land supplied by the government, the reason why especially implementing companies show great interest in joint land is that there are almost no risks pertaining to permits or project financing (PF)," and added, "Since the land has been released through governmental urban planning, it is also often well-equipped with infrastructure, making the business potential somewhat guaranteed."
The government plans to continue to alleviate the burden on construction firms suffering from rising prices of raw materials and labor by actualizing public project construction costs. They will either refine or newly establish criteria for cost correction based on site characteristics to allow for higher construction costs. It is expected that the prices for some private multi-family housing built on public land will increase by 10% for purchases by LH and others as public rental housing.
Park Hapsu, an adjunct professor at Konkuk University’s Graduate School of Real Estate, remarked, "When the real estate market is tough, construction firms have no choice but to restructure their businesses mainly around government-driven public works, even if it doesn't lead to significant revenue," and added, "The government has recently expressed its intention to raise the unit price for public project construction costs, and public projects, which carry no risks based on the sale outcome, are easy for cash flow management and are being recognized for their stability."