Speculation on Sale Prices Ahead of Announced Construction Costs

To Reflect Rising Construction Costs,
Sales Delayed from Next Month
Increasing Sale Prices... Conflicts Between Real Buyers and Associations Also Emerging

[Asia Economy Reporter Kim Hyemin] An analysis has emerged that the upcoming Ministry of Land, Infrastructure and Transport’s (MOLIT) announcement of the ‘Standard Construction Cost’ next month is causing a short-term contraction in housing supply in Seoul and the metropolitan area. Construction companies and major reconstruction and redevelopment associations are reportedly delaying their sales schedules until after September to reflect the revised construction costs. There are even signs of conflicts arising between homebuyers waiting for general sales and the associations in the market.

According to industry sources on the 19th, MOLIT will announce the Standard Construction Cost on the 15th of next month. The Standard Construction Cost is used to calculate the sale price of apartments subject to the price ceiling system. The core of the price ceiling system is to sell apartments at prices below the sum of the Standard Construction Cost, land cost, and additional costs. The Standard Construction Cost applies to complexes that apply for resident recruitment approval after the announcement date.

The Standard Construction Cost has risen every year since 2013, except for a single decrease in March last year. Especially this year, the ceiling price per 3.3㎡ was announced as 6,534,000 KRW in March, but due to a sharp rise in rebar prices, it was unusually increased again to 6,650,000 KRW on the 19th of last month. The Standard Construction Cost is announced twice a year in March and September to reflect changes in construction costs, but if material prices fluctuate by more than 15%, an additional announcement can be made in between.

Since the prices of materials such as rebar continue to rise recently, there is a high possibility of further increases in the September announcement. According to the steel industry, the distribution price of rebar, which was traded at 1,060,000 KRW per ton in July, has risen to 1,220,000 KRW (as of the 13th).

In the sales industry, the mood is to wait for the September announcement of the Standard Construction Cost rather than rushing the sales schedule. In areas subject to the price ceiling system, if construction costs rise, there is a greater possibility of price increases, and in areas where the Housing and Urban Guarantee Corporation (HUG) conducts high-price sales reviews, it is believed that negotiation power on prices can be strengthened. This can also reduce the burden of rising construction costs.

An industry official said, "The number of sales in August has significantly decreased, and in areas above the price management zone or where prices are sensitive, there was also an aspect of postponing sales to use the Standard Construction Cost announced in September as a negotiation lever." According to Real Estate 114, actual sales volume in Seoul was 199 units in July and 90 units in August, while 5,769 units are scheduled for September.

However, the increase in sale prices due to the rise in the Standard Construction Cost may return as a burden on applicants. Since the land cost, another major factor in determining sale prices, is soaring due to the sharp rise in official land prices, the combined burden of rising construction costs could significantly increase sale prices. In fact, Raemian One Bailey in Banpo, Seocho-gu recorded the highest-ever sale price per 3.3㎡ despite the application of the price ceiling system. Apartments priced over 900 million KRW are also ineligible for group loans covering 80% of the sale price for interim payments.

An industry insider said, "As factors driving up sale prices increase, conflicts between associations/developers and applicants waiting to purchase may deepen." In fact, in a redevelopment association in the metropolitan area, conflicts between association members and applicants waiting to purchase have reportedly emerged during the process of delaying sales schedules to raise general sale prices. While higher general sale prices increase profits for the association, they reduce potential capital gains for applicants waiting to purchase.

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