"Cannot Move In" Conflicts Over Additional Construction Cost Contributions Explode in Rebuilding Complexes

Conflicts between construction companies and reconstruction associations are arising in various places due to the issue of sharing additional construction costs caused by soaring interest rates and a sharp rise in construction raw material prices. The photo shows the One Bailey site under construction in Banpo-dong, Seocho-gu, Seoul.

Conflicts between construction companies and reconstruction associations are occurring in various places due to the issue of sharing additional construction costs caused by soaring interest rates and sharp increases in construction raw material prices. In one complex in Mokdong where move-ins have begun, the construction company demanding an increase in construction costs has even blocked residents from moving in. Another complex in Gangnam, where move-in is imminent, saw the construction company notify the association of move-in restrictions.

According to the maintenance industry on the 8th, the entrance to the Sinmokdong Paragon Apartment in Yangcheon-gu, Seoul, is currently blocked by containers despite the scheduled move-in date having passed. The construction company, Dongyang Construction Industry, began exercising a lien after the association rejected its request to share about 10 billion KRW in additional construction costs.

At Daechi Prugio Summit in Gangnam-gu, conflicts between the construction company Daewoo Engineering & Construction and the association are intensifying over the issue of sharing additional construction costs. Daewoo E&C demanded an increase of 67 billion KRW in construction costs reflecting overdue interest due to non-payment of 90.3 billion KRW and raw material price increases, but the association has refused. Daewoo E&C reportedly notified that "if not reflected, residents' move-in may be restricted." The scheduled move-in date is the end of May.

The Raemian One Bailey in Banpo-dong, Seocho-gu, which experienced construction delays due to conflicts over additional construction cost sharing, still faces issues. Samsung C&T, the construction company, requested the association to increase construction costs by 156 billion KRW for community upgrades and specialized designs, and the association has asked the Korea Real Estate Board to verify the validity of the cost increase.

At Sinbanpo Maple Xi, GS Engineering & Construction and the association have been negotiating construction costs for several months amid difficulties. GS E&C requested an increase in construction costs from 930 billion KRW to 1.4 trillion KRW and a 10-month extension of the construction period. The association initially agreed to raise the construction cost to 1.13 trillion KRW and extend the construction period by 8 months. However, discussions on the cost increase will continue.

There are also many sites where construction has not even started due to the issue of rising construction costs.

The Shindong-A Apartment reconstruction association in Seocho-dong set the construction cost at 4.74 million KRW per 3.3㎡ when selecting the construction company DL E&C in August 2017, but now DL E&C is requesting an increase to 7.5 to 7.8 million KRW per 3.3㎡, causing difficulties. The Shindong-A Apartment reconstruction association is currently preparing to request a cost verification from the Korea Real Estate Board.

At Mapo Xi Hillstate in Mapo-gu, jointly constructed by GS E&C and Hyundai Engineering & Construction, construction was delayed for over half a year due to disputes over cost increases but recently reached an agreement. The association and the construction consortium agreed to raise the construction cost from 4.485 million KRW per 3.3㎡ at the time of the 2017 contract to 6.13 million KRW. The timing of construction commencement is still under discussion.

A construction industry official said, "With labor costs and construction raw material prices soaring and interest rates skyrocketing, financial costs have risen sharply," adding, "Due to the nature of reconstruction projects, most sites calculated construction costs based on market prices from several years ago, making cost increases inevitable."