On July 18, Daewoo Engineering & Construction announced that it would propose to the Gaepo Useong 7th Apartment Reconstruction Association that members pay 100% of their contribution at the time of move-in, without requiring end-user financing. This measure aims to reduce the financial burden on association members during the project. The company also made it clear that construction costs would be collected later and that any increase in those costs would be minimized.
In general, there have been several cases in which contractors in redevelopment projects have proposed 100% payment of contributions at the time of move-in. However, many of these proposals include a fine-print condition requiring "end-user financing." In such cases, each association member is indeed required to pay 100% of their contribution at move-in. However, during the project period, members must take out loans to cover various project expenses and construction payments. This process incurs monthly interest charges, which are then billed together with the contribution at move-in. Daewoo, however, intends to proceed with the project in a way that eliminates the need for end-user financing, thereby removing the interest burden for members.
Previously, the company proposed to match the entire amount of the association's essential project expenses?which are estimated at around 400 billion won?to the CD (Certificate of Deposit) interest rate, which is currently about 2.5%. Daewoo also committed to covering the Housing and Urban Guarantee Corporation (HUG) guarantee fee. If the project continues for more than five years, the amount saved on financing costs alone is estimated to reach several tens of billions of won.
Daewoo Engineering & Construction also proposed that construction costs be paid to the association as progress payments from sales revenue, which is advantageous for the association. The payment structure was designed so that construction costs are reimbursed last, after other project expenses and interest costs have been repaid first. This means that when the association receives sales revenue, it will first repay project expenses, and then pay construction costs within the progress payment limit only when there is a remaining balance in the association’s account.
The company also emphasized its commitment to keeping construction cost increases low during the project. Typically, construction costs are renegotiated based on the increase in the Consumer Price Index or the Construction Cost Index. Daewoo proposed applying the lower of the two increase rates.
In the competition for this construction contract, Samsung C&T reportedly proposed using the average of the two indices. A Daewoo Engineering & Construction representative explained, "Over the past five years, the difference between the lower value and the average value of the two indices has been about 2.6 percentage points. When this difference is applied to the total construction cost and project duration, the resulting difference in financing costs amounts to several tens of billions of won."
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