Recently, as the real estate market continues to slump and construction costs rise, large construction companies are canceling contracts for some small-scale business sites that are relatively less profitable.
According to the maintenance industry on the 14th, the Incheon Michuhol District Yonghyeon 3 road housing maintenance project association is set to hold a general meeting to select a construction company on the 17th. The establishment was originally selected for construction by DL E&C in 2021 but the contract was canceled. Geumgang General Construction is expected to be selected as the construction company.
DL E&C also canceled the contract for the small-scale reconstruction of World Villa in Guro District, Seoul. Subsequently, it reselected Jungang Construction as the contractor.
TAEYOUNG E&C secured the 'Gimnyangjang-dong 342-5 road housing maintenance project' in Yongin City last January, but it canceled the contract as it entered a workout process. Instead, Xi S&D was selected as the new contractor on the 11th of last month. The contract amount for the construction is 1.04 billion won.
Hanwha's construction division secured the small-scale reconstruction of Il-dong Park Mansion in Buk-gu, Busan, along with the Jeongnam Apartment road housing and the road housing project in Deokcheon-dong 365-26, but canceled the contracts. Each of these establishments has been reselected for construction by Daebang Construction.
Last year, the Jangwi 11-1 district association faced conflicts with the existing contractor Hyundai E&C over increased construction costs, leading to the termination of the contract. SG Shinsung Construction proposed a construction cost lower than Hyundai E&C and was newly contracted. At that time, Hyundai E&C requested to raise the construction cost, which was contracted at about 6.3 million won per 3.3 square meters, to 8.97 million won, causing the conflict. The association could not accept this and terminated the contract, seeking a new contractor. The construction cost proposed by Shinsung Construction was 7.6 million won per 3.3 square meters, 1.37 million won lower than that of Hyundai E&C.
Due to the sluggish construction market, large construction companies are abandoning small-scale business sites they deem unprofitable. A representative of a large construction company noted, "After selecting a contractor, it takes at least 2 to 3 years before actual construction begins, during which time construction costs are realistically checked and increases are requested. However, due to a sharp rise in construction costs in recent years, it has often become difficult to meet conditions in small-scale business sites."
Medium-sized companies are reacting that, while profitability is low, they still need to secure future order backlogs by winning contracts for small-scale business sites. A representative of a large construction company noted, "Large companies have minimum standards for finishing, design, community, landscaping, etc., and cannot lower construction costs below these standards in order to maintain their brand. On the other hand, medium-sized construction companies or those operating as regional bases may have some flexibility to negotiate, which seems to encourage them to pursue contracts."
A representative of a medium-sized construction company stated, "Even if profitability decreases, we adopt a strategy to win contracts first," adding, "Especially as the construction industry has stagnated recently, large construction companies have shown interest in small-scale business sites, leading medium-sized construction companies to adopt a mentality of securing contracts whenever possible."