As Raw Material Costs Rise, Officetel Sale Prices Soar... Apartment Sale Prices Also Expected to Increase

Rus-Ukr war-driven raw material price hikes lead to construction and sale price increases
Rebar and framework costs more than double compared to last year
Unregulated officetels see price rises... Apartment prices may also increase in June

Perspective view of Sinseoldong Station Jaileune Officetel. Photo by Xi S&D, Yonhap News

[Asia Economy Intern Reporter Kim Se-eun] It has been confirmed that housing sale prices are rising as construction costs increase due to the sharp rise in raw material prices.

As raw material prices have increased due to global supply chain issues such as Russia's invasion of Ukraine, conflicts between clients and contractors over construction cost increases are intensifying.

According to the construction industry on the 1st, as of the end of last month, the average construction cost per pyeong (3.3㎡) rose by 10-15% compared to the end of last year within four months, and by 25-35% compared to October last year.

A report released by the Bank of Korea in March showed that the price of construction materials in the fourth quarter of last year (October to December) rose by 28.5% compared to a year earlier, indicating signs of a full-scale price increase.

Among all construction materials, the proportion of items with prices rising more than 10% compared to the same period last year was only 8.9% in 2020 but surged to 63.4% at the beginning of this year. In particular, the price of rebar structures more than doubled compared to last year. Rebar, which was traded at 500,000 to 600,000 KRW per ton last year, recently exceeded 1,000,000 KRW. Ready-mixed concrete and its raw material cement also increased by 13% and 15%, respectively.

Ready-mix concrete mixer truck. Photo by Asia Economy

As a result, the average construction cost per pyeong for officetels ranging from basement level 4 to ground level 20 recently soared from the 5 million KRW range to 6 to 6.5 million KRW. Interior costs, which used to be around 1 million KRW per pyeong, also rose to 1.3 to 1.4 million KRW.

A construction industry official stated, "Just last week, over 50 construction sites nationwide halted work due to rising raw material prices," adding, "In small-scale housing construction sites as well, cases of clients terminating contracts due to contractors' demands for increased construction costs are occurring frequently."

As overall construction costs rise, sale prices for officetels, urban-type residential housing, and residential lodging facilities, which are not subject to sale price regulations, are increasing.

For example, the recently closed subscription for the 'Sinseoldong Station Jaileune' officetel in Sinseoldong, Dongdaemun-gu, Seoul, recorded a sale competition rate of 42:1, benefiting from its proximity to Sinseoldong Station where subway lines 1, 2, and the Ui-Sinseol line pass.

The sale price for the smallest officetel unit (32㎡) reached approximately 550 million to 621.5 million KRW, which was priced higher than the 500 million to 540.6 million KRW sale price for units of the same size sold two months earlier.

A real estate agency owner explained the price difference between the two officetels located only 1.5 km apart by saying, "It seems that the sale price of the recently sold officetel was raised due to increased pressure on construction costs caused by the sharp rise in raw material prices."

An increase in apartment sale prices is also expected starting in June.

The Ministry of Land, Infrastructure and Transport raised the basic construction cost for multi-family housing by 2.64% on March 1 compared to last September, but as raw material prices continued to rise, it decided to review price fluctuations on June 1 to determine whether to further increase construction costs.

The basic construction cost applies to apartments subject to the sale price ceiling system and is regularly announced twice a year on March 1 and September 15. However, if the price of major materials changes by more than 15% three months after the announcement, the price can be adjusted through an irregular announcement to reflect the change.

Last year, when the price of high-strength rebar surged by 33%, the government also raised the basic construction cost additionally in July of the same year.

Lee Eun-hyung, a research fellow at the Korea Construction Policy Institute, explained, "Currently, both land costs and construction costs included in sale prices inevitably have to rise," adding, "If sale prices are suppressed as they are, it could hinder the government's policy to expand housing supply."

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