Samsung C&T Increases Units in Hannam 4 District vs Hyundai Construction Cuts Construction Costs

Comparison of Construction Company Proposals Shows Mixed Pros and Cons by Sector
Hyundai Construction: "Reduced Number of Units but Increased Medium to Large Units"
Samsung C&T: "Higher Construction Costs but Cost Offsets Possible"
Members Weighing Pros and Cons... Biggest Interest Is Han River View

Samsung C&T and Hyundai Engineering & Construction are engaged in a fierce final competition ahead of the selection of the construction company for Hannam 4 District in Yongsan-gu, Seoul, considered a major redevelopment project along the Han River. They are unveiling unprecedented conditions day by day to win over the union members, such as reducing construction costs, increasing relocation benefits, and voluntarily promising responsible completion. Union members are also divided according to their preferences and are engaged in debates over each issue, making it difficult to predict the outcome of the construction company selection scheduled for the 18th of next month.

Samsung C&T increases number of households... Hyundai E&C reduces construction cost and period

According to the bid proposal comparison table prepared by the Hannam 4 District union on the 11th, Samsung C&T and Hyundai E&C are competing for the contract with unprecedented conditions. This is different from the recent trend in the construction industry, which has been selectively bidding only on profitable projects in redevelopment due to rising construction costs and economic downturn.

Compared to the original content proposed by the union, Hyundai E&C significantly reduced the construction amount and period, while Samsung C&T proposed increasing the number of households to expand the union’s sales revenue.

Both construction companies submitted bids lower than the originally proposed 9.4 million KRW per pyeong by the union. Samsung C&T’s bid is 9.383 million KRW per pyeong (approximately 1.5695 trillion KRW in total), and Hyundai E&C’s is even cheaper at 8.8143 million KRW per pyeong (approximately 1.4855 trillion KRW). Hyundai E&C also proposed to complete the total construction period in 49 months, 8 months earlier than Samsung C&T, and included a clause promising responsible completion within the agreed period with the union.

On the other hand, the total number of households is 2,248, which is 83 fewer than the number included in the Hannam 4 District redevelopment promotion plan. Although the promotion plan allows up to 23 floors, Hyundai E&C lowered it to 19 floors. Samsung C&T proposed up to 20 floors and 2,360 households, which is 29 more than the promotion plan and 112 more than Hyundai E&C’s proposal. They can secure 24 additional general sale units directly linked to sales revenue and union members’ contributions.

Hyundai E&C "Securing medium to large units" vs Samsung C&T "No HUG guarantee fee"

However, Hyundai E&C’s adjustment in the total number of households is due to reducing small-sized units and increasing medium to large-sized units. The redevelopment promotion plan includes 562 households under 50㎡, accounting for a quarter of the total households. Hyundai E&C proposed reducing this to 289 households. Conversely, they plan to increase units sized 50?60㎡ and over 85㎡ by 199 and 44 households respectively. This appears to reflect the union members’ demands to reduce the possibility of unsold units by decreasing small units and increasing larger units. This contrasts with Samsung C&T, which increased small units and reduced medium to large units over 85㎡.

On the surface, Samsung C&T’s construction cost is 84 billion KRW higher. However, Samsung C&T can leverage its high credit rating (AA+) to self-finance without obtaining a guarantee from the Housing & Urban Guarantee Corporation (HUG), reducing costs associated with HUG guarantees. The HUG guarantee fee is estimated to be at least 25.6 billion KRW. Additionally, if the inflation rate changes by more than 3% before construction starts, Samsung C&T proposed to bear up to 31.4 billion KRW of the increased contract amount. They also included anticipated future costs such as environmental impact assessments in the construction cost, so the final amount should be compared between the two companies.

Looking into other areas, each company has mixed advantages and disadvantages. Hyundai E&C offers a lower loan interest rate at CD rate + 0.1 percentage points. Meanwhile, Samsung C&T allows additional relocation loans up to 150% of the basic Loan-to-Value (LTV) ratio by adding 100% on top of the 50% basic collateral recognition ratio. They also proposed guaranteeing a minimum relocation loan of 1.2 billion KRW.

"How much will promises be kept?"... Busy union members weighing pros and cons

Union members who received the bid proposal comparison table are carefully weighing the pros and cons of each item. They sometimes clash sharply depending on their preferred construction company or content. One union member said, "Although Hyundai E&C promises responsible completion, they included a clause excluding reasons beyond the contractor’s (construction company’s) responsibility for construction suspension and set compensation limits within 5% of the contract amount for delays. I wonder if this responsible completion promise is meaningful or not."

The union members’ biggest concern appears to be the possibility of Han River views. One union member commented on Samsung C&T’s condition of "Han River views for all union members," saying, "The proposal includes a phrase stating ‘the above views may vary depending on each household’s location or changes in surrounding residential areas.’ Considering apartments being built in Hannam 3 and 5 Districts, I doubt whether this proposal is actually feasible." Another union member mentioned Hyundai E&C’s claim of "100% Han River view for union members," saying, "We need to examine the total number of Han River view households calculated by each construction company and the number of households per district."