Construction Association: "Heavy Taxation on Multiple Homeowners Should Be Eased... Construction Safety Act Penalties Must Be Rationalized"

Construction Association Announces Key Achievements and Plans
Transaction Disappearance and Sharp Drop in Rental Supply Due to Regulations on Multiple Homeowners
Proposes Temporary Tax Relief for the Elderly or Early Sales in the Metropolitan Ar

The Construction Association has expressed its opinion that the heavy taxation regulations on owners of multiple homes should be eased to revitalize transactions. Regarding the Special Act on Construction Safety, which imposes a fine of 3% of sales revenue in the event of a safety accident, the association believes that the standards for imposing fines should be rationalized.

At a press conference held by the Korea Construction Association on December 14, President Han Seunggu stated, "Only about 7% of the supplementary budget is allocated to construction project orders, and this alone is not enough. The private sector must be active for the construction industry to thrive," adding, "To revive the economy, the construction industry must be revitalized."

The association announced its major achievements and future plans on key issues at the event. The association believes that although the government has introduced strong demand-suppression measures, such as the October 15 real estate policy, these have led to side effects, including a disappearance of transactions and a sharp decline in the supply of rental properties. Therefore, it argues that regulations should be eased to revitalize real estate market transactions. The association emphasized, "The decrease in new purchases by multiple-home owners due to higher tax rates not only leads to a downturn in regional housing markets but also reduces the supply of rental properties, undermining the stability of the rental market," stressing the need for improvements to the heavy taxation policy on multiple-home owners.

Although the temporary exclusion period for heavy capital gains tax on multiple-home owners has been extended by one year until May 9 next year, the association plans to continue pushing for further tax relief. The association explained, "If a complete relaxation of heavy taxation on multiple-home owners is difficult, options such as limiting the measure to seniors or temporarily applying capital gains tax reductions for early sales of homes in Seoul and the metropolitan area could be considered."

Additionally, the association identified the abolition of restrictions on pre-sale as a key task to ensure a stable supply of private housing. Currently, pre-sale restrictions are set at 6 months to 2 years depending on the duration of business suspension, but the association argues this should be uniformly revised to 3 months. It also believes that the reasons for business suspension should be limited to violations of the Housing Act, rather than both the Framework Act on the Construction Industry and the Housing Act as currently applied. Furthermore, the association plans to continue recommending the abolition of the price ceiling system for new apartment sales and the excess profit recovery system for reconstruction projects to promote redevelopment projects.

Rationalizing the Special Act on Construction Safety, which imposes business suspensions or fines in the event of accidents caused by violations of safety obligations, is also a major issue for the industry. Key provisions of the act include: business suspension or fines of up to 3% of sales revenue in the event of an accident; mandatory installation of safety facilities; the introduction of claims for changes in construction period or cost; and fines of up to 3 million won for violations of safety obligations for construction workers.

The association stated, "Given the current operating profit margin of the construction industry (3.15%), these fines could seriously undermine the financial soundness of companies, making it difficult even for large corporations to bear. If overlapping fines are imposed under the Serious Accidents Punishment Act and the Industrial Safety and Health Act, even large companies will not be able to withstand the burden and may be forced to close, leading to mass layoffs, a chain of bankruptcies among subcontractors and related industries, and inevitable economic damage."

Based on a simulation using fatal accident data from the past five years, the association estimates that among the top 10 construction companies, 2 to 4 companies would have to pay about 100 billion won in fines annually, while some companies would face fines of 300 to 400 billion won each year.

The association said, "For construction companies, the disadvantages from accidents far outweigh business profits, forcing them to pursue projects passively. We will explain the problems with the legislation to the National Assembly and seek to establish rational standards for fines through public hearings and seminars."

The association will also promote institutional improvements to ensure appropriate construction periods and costs. Since 2020, construction costs have soared, with the construction cost index rising from 99.9 in January 2020 to 131.7 as of September this year, an increase of 31.4%.

According to a survey conducted by the association and the Construction Industry Research Institute on 150 companies, 43.7% of construction projects completed in the past three years resulted in losses. This was mainly due to ordering agencies underestimating construction costs because of budget shortages or failing to adjust contract amounts during the construction phase. In addition, 64.1% of respondents said that construction periods were not properly estimated.

The association emphasized, "The exclusion of bids below 98% of net construction costs should be expanded from the current threshold of projects under 10 billion won to those under 30 billion won. Institutional measures should also be put in place, such as allowing objections to unfair estimated prices and making it mandatory to apply the latest unit prices as of the bid announcement date."

Confusion continues in private construction projects due to the lack of legal provisions for adjusting contract amounts in response to price fluctuations, resulting in construction stoppages. Under the Subcontracting Act, even if the prime contractor does not receive a contract adjustment from the ordering party, if material prices soar, the increase must be paid to the subcontractor.

The association stated, "We will actively consult with the government and the National Assembly to ensure that the amendment to the Framework Act on the Construction Industry, which includes provisions for adjusting contract amounts in private construction projects, passes the National Assembly."