They Want KRW 180 Billion More After Just One Year... Seoul's 'Construction-Cost Bomb' Hits Busan

[Financial News] Construction-cost increases in redevelopment projects, which began in Seoul, are spreading to regional areas. The amounts range from the KRW 30 billion level to the KRW 260 billion level. Concerns over these increases are also growing, as the redevelopment project itself could be delayed if no agreement is reached.
■ "Raise It by KRW 180 Billion"... Association: "Incomprehensible"
According to redevelopment industry sources on the 22nd, the contractor consortium for A District in Nam-gu, Busan, recently sent association members an official notice saying that an increase of about KRW 180 billion in construction costs was necessary. Once redevelopment is completed, the area is slated to become a large complex with more than 20 buildings and over 4,000 housing units.
This comes just one year after the contract amount was finalized last year. The contractor and the association had previously set the contract amount at approximately KRW 1.38 trillion. If the increase is approved, construction costs will rise sharply from around KRW 6.3 million to the low KRW 7 million range per 3.3 square meters.
Association members say the request is "incomprehensible." One member said, "I asked the contractor to explain the grounds for the construction-cost increase, but was only told, 'We cannot answer because it is a business secret.'" The member added, "How can we agree to an increase when we do not even know where or how the money will be spent?"
The contractor explained that an increase was necessary because the design had been changed under the contract. Two major construction companies are participating in the project as a consortium. A contractor representative said, "The current contract amount is based on the project implementation approval granted in June 2022," adding, "Construction costs have risen because the volume of work increased under the drawings for the current sixth project implementation approval." The contractor said it plans to undergo construction-cost verification through the Korea Real Estate Board (KREB).
The association and the contractor met on the 21st to negotiate the construction-cost increase but failed to reach an agreement. The two sides plan to hold an additional briefing on October 1.
■ Growing Contractor Requests for Construction-Cost Increases
This is not the only project site in Busan where a construction-cost increase has been requested. As redevelopment projects become more active not only in Seoul but also in some regional areas, contractors are increasingly asking for higher construction costs.
The number of project sites that requested construction-cost increases and underwent verification by the Korea Real Estate Board rose from three in 2023 to four in 2024 and six last year. Contractors for at least 13 projects have requested higher construction costs. This year, including A District, five projects have either undergone or are scheduled to undergo verification. The number is expected to rise further when project sites that have not undergone verification are included.
The problem is that a failure to reach an agreement on construction-cost increases for redevelopment projects could delay the projects. In the worst-case scenario, residents may be unable to move in even after the apartments have been completed. A major construction industry official said, "The parties only need to reach an agreement within the construction period, but if they fail to do so, the situation becomes complicated," adding, "It could even turn into a messy dispute involving litigation."
This year, the smallest construction-cost increase request was KRW 35.5 billion, while the largest was KRW 269.6 billion. Numerous project sites have demanded increases in the KRW 100 billion range. This is why voices are emerging that the construction-cost issue is causing serious problems not only in Seoul but also in regional areas. A real estate industry official advised, "An increase may be necessary because the prices of construction-cost components, such as raw materials and labor, have risen," but added, "However, an agreement at an appropriate level is necessary because any delay to the project could increase losses, including financing costs."
[email protected] Kwon Jun-ho Reporter