The government announced that it would overhaul the preliminary feasibility study (hereinafter referred to as 'pre-feasibility') system to expedite the implementation of social overhead capital (SOC) projects. The plan is to increase the total project cost and government funding standards for pre-feasibility assessments and to relax regulations so that small-scale projects do not require pre-feasibility assessments. The construction industry welcomed this, saying it would help the economic recovery.
On the 14th, the government held a meeting of economic relation ministers and announced the 'measures to enhance local-centered construction investment.' The proposal included raising the current standards of total project costs and government funding for pre-feasibility assessments from 50 billion won and 30 billion won to 100 billion won and 50 billion won, respectively.
This marks the first improvement in the pre-feasibility assessment standards in 26 years since the system was introduced in 1999. When the standard amounts are raised, relatively small projects will be able to proceed directly to the basic plan establishment and design stages without going through the pre-feasibility assessment process.
In addition, the government plans to appropriately reflect the recent surge in construction costs in SOC projects by reorganizing unit price standards by construction type and improving price reflection standards from the project planning stage to the pre-feasibility assessment initiation point. The method will apply an average value to the total project cost when the gap between the construction investment GDP deflator and the construction cost index exceeds 4%. The construction investment GDP deflator is an indicator that measures price changes by dividing the nominal GDP of the construction sector by the real GDP.
The construction industry sees a positive impact on the feasibility of SOC projects due to this improvement in standards amid a stagnant construction market. A representative from a major construction company said, 'I believe this is a meaningful measure for recovering the long-stagnant construction market. Especially, there is high expectation in the industry for the willingness to improve budget execution for SOC and alleviate construction cost burdens.'
Another construction company representative noted, '(With the relaxation of pre-feasibility standards) we expect that the previously constrained market will open up. It seems that construction companies will have more opportunities for project bidding and be able to proceed with projects more comfortably.' They continued, 'However, it is necessary to watch whether the level of construction cost normalization will be satisfactory for construction companies. If major projects such as the Gadeokdo new airport achieve realistic construction costs, smaller-scale SOC projects are expected to follow suit.'
Experts also evaluated that the accelerated project promotion speed would have a positive effect. Lee Eun-hyung, a research fellow at the Korea Construction Policy Institute, said, 'Raising the standard amount for pre-feasibility assessments for SOC projects positively affects the speed of project promotion in public sectors like local governments.' They added, 'The reorganization of unit price standards and improvement of price reflection standards, as well as raising the minimum successful bid rate for small projects, are also positive measures in reflecting changes in business environments like price volatility into existing systems.'
Park Won-gap, senior expert at KB Real Estate, remarked, 'If the improvement in pre-feasibility standards activates local transportation and living infrastructure, it will also help invigorate the local economy.' They noted, 'Rather than being a strong stimulus measure, this will help partially recover the stagnant local economy in a situation where local real estate prices are bottoming out, leading to a soft landing effect.'
However, there are concerns that budget efficiency could decline depending on the evaluation of project feasibility. Kim Hyo-seon, senior member of NH Nonghyup Bank's real estate division, stated, 'While the normalization of construction costs and strengthening of cost reflection is positive for the execution of SOC budgets, if the conservativeness of the feasibility evaluation weakens, budget efficiency could drop.' They emphasized the need to strengthen feasibility verification when supporting the expansion of living and transportation infrastructure in areas with incoming demand and to continuously monitor the performance of public procurement and SOC execution.