Can Ease of Presale Price Regulations Prevent Construction Cost Surge? Kim Jin-Soo’s Real Estate Inside

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On the 21st, the Yoon Seok-Yeol administration’s first real estate measure, ‘Measures to rationalize the operation of the sale price system’, was unveiled. Can this measure help to stimulate the supply of housing and solve the problem of construction costs that have soared since last year?

The main contents of the plan to rationalize the sale price operation are the ‘upper sale price system’ applied to some speculation overheating districts in Seoul and Gyeonggi Province and the relaxation of regulations on the ‘high sale price review’ of the Housing and Urban Guarantee Corporation (HUG).

The price ceiling system consists of housing land cost, construction cost, etc. In this measure, when calculating the sale price of a private maintenance project subject to the sale price ceiling system, tenant relocation costs, operating loss compensation costs, name litigation costs, financial costs for relocation of existing residents, and general assembly operating costs are also to be reflected in the general sale price.
The basic construction cost applied to apartments subject to the pre-sale price cap system in some speculative overheated districts in Seoul and Gyeonggi-do can be flexibly adjusted to changes in the price of the house. When determining the cost of private housing that is calculated by appraisal, a Real Estate Verification Committee was established to listen to the opinions of appraisers during the inspection by the Korea Real Estate Agency. If this happens, the government estimated that the sale price would rise by 1 to 4%.

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HUG’s high sale price review system changed from 20 years of construction completion to 10 years when selecting comparative business sites. In addition, all screening criteria were disclosed and an appeal procedure was added.

This measure will be applied when the city redevelopment project association, such as reconstruction and redevelopment, makes a general sale in the future. When the general sale price rises, the profit of the association increases. In some areas subject to adjustment, the sale price may be slightly higher even when examining some high sale prices. This means that some effect on housing supply can be expected if the sale price is eased. However, the supply of housing is possible only when the noise of individual complexes, such as unions and subcontractors and lawsuits, is reduced.

The industry is concerned that the problem of construction costs, which has soared since last year, could become a black hole that will swallow up the real estate market in the second half of the year. The voice of the construction site is that the new construction cost has increased by 15-20% in the past year. It is true that the prices of various raw materials such as reinforced cement PHC piles have skyrocketed due to the collapse of the global supply chain and a strike by the cargo coalition in the aftermath of the Corona 19 and the Ukraine war.

The general conditions surrounding real estate, such as interest rate hikes due to inflation concerns, are deteriorating, making it difficult for end-users to buy their own houses. In the financial district of Yeouido, Seoul, we hear that the situation of PF procurement for real estate development projects is rapidly deteriorating.

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The union and the contractor enter into a subcontract contract before the start of construction. Some of the complexes signed last year contain content that reflects the inflation rate (consumer price index). However, most of them signed contracts in a form that did not reflect price fluctuations in the construction cost. A construction company that dragged a construction site with various efforts in the first half of the year may also declare a halt to construction as it can no longer endure in the second half of the year. The industry is concerned that construction companies outside the top 100 in the construction capability evaluation may default (bankruptcy) in the second half of the year.

If the cooperative raises the construction cost of a construction company suffering from a soaring atomic price as an opportunity to increase the sale price, the possibility of construction stoppage at the site may be reduced. However, the slightly increased price is not a fundamental solution to calm the construction cost fluctuation. The construction industry is sighing deeply as there is no sign of a solution to the construction cost shock caused by disruptions in the global supply chain.

Reporter Jinsoo Kim true@hankyung.com

ⓒ Hankyung.com, unauthorized reprinting and redistribution prohibited

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