Construction Costs Rise 30% in 3 Years... Real Estate Slump Deepens

Causes of Raw Material Price and Wage Increases
High Pre-sale Prices Make New Projects Difficult

Construction costs have risen by 30% in three years due to increases in raw material prices and wages, further exacerbating the real estate market downturn.

According to the "November 2023 Construction Cost Index Trends" released on the 1st by the Korea Institute of Civil Engineering and Building Technology (KICT), the construction cost index was recorded at 153.37 in November last year. The construction cost index is an indicator that shows the price changes of direct construction costs for resources such as materials, labor, and equipment used in construction projects.

The index, which was 120.2 as of November 2020, rose to 138.62 in November 2021, then jumped to 148.84 in November 2022, and further to 153.37 last November. In particular, compared to November last year, the construction cost index increased by 27.57%.

The construction cost index for residential buildings was 152.54, up 3.32% from 147.63 a year earlier. For non-residential buildings, it was 151.81, a 2.91% increase from 141.51 in the same period last year. Transportation facilities also rose 2.79%, from 151.22 to 155.45 during the same period. General civil engineering increased by 2.38%, from 150.81 to 154.40. Industrial facilities jumped 3.51%, from 151.58 to 156.91.

The rise in construction costs is attributed to increases in raw material prices and wages. According to KICT, in November, the energy sector saw a 4.6% increase in thermal power, nuclear power, and renewable energy compared to the previous month. Cement prices also rose by 2.57%.

Wages also increased sharply. According to the "2023 Construction Industry Wage Survey" released by the Korea Construction Association, construction wages in the second half of last year were 265,516 won, up 3.95% from the first half. Compared to the same period the previous year, wages rose by 6.71%.

Daishin Securities, in its outlook report for the construction industry next year, stated, "Due to rising construction costs and resulting high sale prices, new projects are not progressing smoothly," and forecasted that "it is difficult to expect a rapid recovery in the construction market next year."

The Korea Research Institute for Construction Industry also analyzed in its recently published Construction Trend Briefing report that "the elevated prices of materials and labor costs are becoming entrenched, and this cost increase is worsening the management of construction companies."