SH Corporation "Supplying High-Quality Housing Like 'Tower Palace'... Need for a New Construction Cost System" (Comprehensive)

Disclosure of Cost Analysis for 142 Complexes
Construction Cost Loss Due to Standard Building Cost
"Need for Post-Sale System Introduction and Construction Cost Transparency"

Seoul Housing and Communities Corporation (SH Corporation) pointed out that the basic construction cost system prevents the pricing of housing units based on actual construction costs. To address this, they argued for the introduction of a post-sale system for public housing construction, disclosure of sales costs, and a comprehensive reform of the basic construction cost system.

Kim Heon-dong, President of Seoul Housing and Communities Corporation (SH Corporation), is speaking at a briefing held on the 17th at the SH Corporation headquarters in Gaepo-dong, Gangnam-gu, Seoul. Photo by Kwon Hyun-ji

On the 17th, SH Corporation held a briefing at its headquarters in Gaepo-dong, Gangnam-gu, Seoul, revealing the results of an analysis of the sales costs of 142 complexes sold by SH since 2005. SH Corporation earned a sales profit of 500,000 KRW per square meter (13.8%) from these complexes. This is the difference between the average sales price (3.6 million KRW per square meter) and the construction cost (3.1 million KRW per square meter). The contribution ratio of land cost to the sales profit was 110% (550,000 KRW profit per square meter), while construction costs showed a -10% ratio (50,000 KRW loss per square meter). Currently, the sales price of pre-sale housing is calculated by adding the basic construction cost, additional construction cost charges, and land cost.

SH Corporation claimed that the large contribution of land cost to sales profit is a result of the basic construction cost system failing to properly reflect actual costs. SH explained, "The sales price is calculated based on the basic construction cost, which lacks sufficient grounds and does not reflect the actual input costs. When costs are not recognized during pricing, the losses are fully borne by the developers, causing them to excessively inflate the land cost portion within the sales price." According to SH Corporation, the sales price of the analyzed housing increased from 2.22 million KRW per square meter in 2005 to 6 million KRW per square meter in 2021. Among this, the increase in land cost was 3.8 times, far exceeding the 1.83 times increase in land cost based on construction costs. Meanwhile, the increase in construction costs was 1.81 times based on sales price construction costs and 2.07 times based on construction cost construction costs, which is smaller than the gap in land cost increase rates.

SH Corporation argued that these issues should be resolved through disclosure of construction costs and the introduction of a post-sale system. SH stated, "In projects adopting the post-sale system, the actual input costs can be known, and if actual construction costs are disclosed, sales prices can be set based on them."

At the event, Kim Heon-dong, President of SH Corporation, said, "To prevent citizen damages caused by poor construction and to ensure transparency in the sales market, it is necessary to introduce a post-sale system and disclose costs that allow for accurate cost identification." He added, "The basic construction cost system must be improved so that sales prices in post-sale system projects can be set based on actual construction costs." He also announced, "Next month, we plan to declare that apartments will be supplied 100% fairly after construction, and we will no longer use the term 'sales'."

He also emphasized the need for sufficient construction cost investment to supply high-quality housing. Kim said, "SH Corporation is preparing to supply housing that can be used for over 100 years, like the Gangnam 'Tower Palace,' in terms of performance and quality." He continued, "To achieve this, sufficient construction costs must be paid to construction companies. This will encourage participation not only from mid-sized construction firms but also from large companies, enabling the construction of good buildings." He revealed, "We have requested the Ministry of Land, Infrastructure and Transport to allow improvements to the basic construction cost system or to use the 'SH-type construction cost' calculated independently by SH Corporation, but we have not yet received a response."

Meanwhile, the Ministry of Land, Infrastructure and Transport regularly announces the basic construction cost every March and September, reflecting comprehensive changes in prices of construction materials and labor costs.