At major reconstruction and redevelopment business sites, builders are continuing to demand increases in construction costs and extensions of construction periods. Recently, some builders even sent official letters asking for a 20% increase in construction costs, citing design changes. The maintenance industry expects requests for higher costs due to variables such as design changes to continue. Builders are in a more favorable position than developers, who lack expertise in negotiations over increasing construction costs.
According to the maintenance industry on the 10th, Hyundai Engineering & Construction on Oct. 28 sent a document to KB Real Estate Trust, the implementer of the Yeouido Hanyang Apartment reconstruction maintenance project, requesting an increase in construction costs. In the document, Hyundai Engineering & Construction asked to raise the existing construction cost of 774 billion won to 894.6 billion won. Converted to the construction cost per 3.3 square meters, it would rise from 8.24 million won to 9.98 million won, up 21.1% (1.74 million won). The company also requested to extend the construction period by eight months, from 62 months to 70 months.
A Hyundai Engineering & Construction official said, "After signing the construction contract in Oct. 2024, the association partially changed the design when it received project implementation approval in Oct. last year," and explained, "We judged an increase was necessary due to raising the maximum number of floors from 54 to 57, changing the basement design, and introducing eco-friendly design methods."
Completed in 1975, Yeouido Hanyang Apartment obtained project implementation approval in Oct. last year, and the complex name was set to be "THE H Yeouido First." The plan is to build three buildings with 992 households and ancillary welfare facilities. Hyundai Engineering & Construction plans to negotiate a cost increase with KB Real Estate Trust. A maintenance industry official said, "Negotiations have not started yet," and added, "It's unclear whether KB Real Estate Trust and the association will accept all of the construction cost increases requested by Hyundai Engineering & Construction."
Daewoo Engineering & Construction on the 14th of last month wrapped up negotiations with the Jangwi District 10 housing redevelopment maintenance association in Seongbuk District, Seoul, on increasing construction costs. The construction cost rose from 369.7 billion won, agreed to in 2018, to 787.1 billion won. The increase was 417.4 billion won (112.8%), more than doubling the cost from the time of the contract.
Redevelopment of Jangwi District 10, located around 68-37 Jangwi-dong, Seongbuk District, was designated as a maintenance zone in 2008 and received approval for a management and disposal plan in 2017. However, the project could not proceed for years due to conflict with Sarang Jeil Church included in the zone. Later, in June last year, a plan to change the project implementation by excluding Sarang Jeil Church from the target site received final approval, and groundbreaking was approved on Dec. 31 last year.
In addition, Daewoo Engineering & Construction and the association changed the plan from building 21 buildings with three basement floors to 29 above-ground floors, 1,968 households, and neighborhood living facilities to building 23 buildings with five basement floors to 35 above-ground floors, 1,931 households, and neighborhood living facilities. A Daewoo Engineering & Construction official said, "We signed a contract to change the construction order for reasons including design changes due to an increase in the number of floors and changes to the project area (exclusion of Sarang Jeil Church), as well as higher construction costs stemming from raw material price increases."
There have been continued cases of builders requesting increases in construction costs, saying the budget was insufficient. The Daecho District 1 redevelopment association in Eunpyeong District, Seoul, agreed in Mar. last year with the builder, Hyundai Engineering & Construction, to increase construction costs by 256.6 billion won. Also in Apr. last year, GS Engineering & Construction agreed with the Sinbanpo District 4 reconstruction association in Seocho District to increase construction costs by 78.8 billion won.
The maintenance industry expects that cases of builders selected as contractors demanding higher construction costs due to reasons such as design changes will continue. After a construction contract is signed, it is difficult for an association or developer to change the contractor, and they have far less expertise than builders in calculating and verifying construction costs.
Lee Eun-hyung, a research fellow at the Korea Research Institute for Construction Policy, said, "It is common for builders to demand higher construction costs after being selected as the contractor," and added, "Builders know well that contracts cannot be easily terminated and that, due to a lack of expertise in calculating costs, associations cannot verify demands for higher costs based on design changes." The research fellow added, "A builder that was in a subordinate position until being selected as the contractor asks for a large increase in construction costs citing specialized designs after selection because the positions of superior and subordinate have been reversed."