Construction Companies Cautious in Bidding for Redevelopment Construction Rights Since Early Year

Business Viability Deteriorates Due to Regulatory Tightening... Consecutive Failures in Galhyeon 1 District and Hong Eun 13 District Auctions

Seoul Eunpyeong-gu Galhyeon 1st District Redevelopment Landscape Simulation

[Asia Economy Reporter Donghyun Choi] Since the beginning of the year, bids for construction companies in major redevelopment zones in western Seoul have been repeatedly failing. This is attributed to strengthened monitoring by the government and Seoul city on illegal activities during the contractor selection process, as well as construction companies showing reluctance to secure orders due to the expansion of the private land price ceiling system.

According to the maintenance industry on the 10th, the bid for selecting a construction company for Galhyeon 1 District in Eunpyeong-gu, considered a "big fish" in the redevelopment projects of northern Seoul, failed yesterday. Until just before the bid deadline, a two-way competition between Hyundai Engineering and Lotte Construction was expected, but Hyundai Engineering withdrew at the last minute. With the contractor selection failing twice in a row, the association is expected to select the contractor through a private contract with Lotte Construction, which submitted a sole bid.

Galhyeon 1 District is a large-scale project with 32 apartment buildings and 4,116 households (including 620 rental units), attracting attention with a total construction cost reaching 920 billion KRW. During the first bid in October last year, Lotte Construction and Hyundai Construction submitted bids, but the association invalidated Hyundai Construction's bid, citing omission of drawings in the bid documents and proposing relocation costs exceeding the collateral, and simultaneously forfeited the 100 billion KRW bid bond. Currently, the association and Hyundai Construction are engaged in litigation.

On the 6th, only HDC Hyundai Development Company submitted a sole bid for the contractor selection in Hong Eun 13 District, Seodaemun-gu. Hong Eun 13 District also plans to hold a general meeting next month to select the contractor through a private contract. At the site briefing in December last year, eight major companies had attended. Hong Eun 13 District had previously selected Hyundai Construction and Line Construction as contractors but terminated contracts and repeatedly held contractor selection bids that all failed. The association plans to build 827 apartments (including 141 rental units) through redevelopment here. Additionally, in Jegi 4 District, Dongdaemun-gu, only Hyundai Construction participated in the site briefing on the 7th, leading to the suspension of the contractor selection schedule that was to close in February.

The reason construction companies are withdrawing one after another from major redevelopment projects in Seoul is due to concerns that government regulations will worsen project profitability. If the project profitability weakens due to the private land price ceiling system, it becomes difficult to guarantee the profits demanded by the association, resulting in a challenging project structure. Furthermore, some associations prohibit consortium formation among construction companies during the bidding process, which is also cited as a reason. Compared to redevelopment in Gangnam, redevelopment in northern Seoul is considered to have relatively lower profitability, and the risk of sole contracts is judged to be high. A representative from a major construction company said, "As housing project risks increase, there are cases where bid bonds worth hundreds of billions of KRW are forfeited, so bidding is indeed burdensome."

Meanwhile, in the first half of this year, redevelopment and reconstruction zones in prime locations such as Hannam 3 District, Hannam Heights, Bangbae Samik, and Sinbanpo 21st District in Seocho and Yongsan are scheduled to select contractors, drawing attention to whether this atmosphere will change. A maintenance industry official predicted, "Although construction companies are cautious in bidding, popular areas may see intense competition and polarization."

This content was produced with the assistance of AI translation services.