Sharp Increase in Construction Costs Leads to Significant Profit Decline for Major Construction Companies... Sales Cost Ratio Rises Above 90%

As construction costs rise, the cost of sales ratio for major large construction companies has been found to exceed an average of 90%.

According to the construction industry on the 16th, Hyundai Construction and Kumho Construction recorded cost of sales ratios of 100.6% and 104.9% respectively last year (based on provisional results).

The cost of sales ratio refers to the proportion of the cost of sales to total sales revenue.

Hyundai Construction posted a provisional operating loss of 1.2209 trillion KRW last year on a consolidated basis, marking an earnings shock not seen in 23 years. Kumho Construction also returned to the red with an operating loss of 181.8 billion KRW.

Daewoo Construction’s cost of sales ratio was 91.2%, while GS Construction and HDC Hyundai Development recorded 91.3% and 90.9% respectively. Samsung C&T’s construction division (89.4%) and DL E&C (89.8%) also approached 90%.

Except for Kumho Construction, the other six companies all rank within the top 10 in construction capability evaluations, with an average cost of sales ratio of 92.2%. Dongbu Construction was about 97%, Doosan Construction 91.2%, and Samsung E&A 84.9%.

The rise in construction companies’ cost of sales ratios is mainly attributed to the increase in construction costs. Following the COVID-19 pandemic and the Russia-Ukraine war, major expenses have all surged significantly.

The increase in construction costs has led to construction companies demanding higher project costs, which in some sites has escalated into disputes and litigation.

Furthermore, even if construction cost increases are smoothly implemented, the raised costs can negatively impact the nearby real estate market through higher sale prices and increased monthly rents.