Construction costs for apartments supplied in areas not subject to South Korea's price cap system have been set up to three times higher than those in areas where the cap applies, a Seoul Economic Daily analysis found. The gap reflects how developers in non-regulated zones have raised construction costs at will, unlike in cap-regulated areas where sale prices are disclosed and screened by individual line items. Critics say the findings point to the need for tighter price cap regulations.
An analysis of sale prices for 18 apartment complexes launched in Seoul since May last year, conducted by Seoul Economic Daily on Friday, showed that construction costs for apartments in non-cap areas ran up to three times higher than those in the three Gangnam districts, where the price cap applies.
Complex A, which opened general subscriptions in Yeoksam-dong, Gangnam District, last December, posted construction costs of 7.78 million won per 3.3㎡ of contract area for units with 84㎡ of exclusive space. That compared with 23.35 million won per 3.3㎡ at Complex B, supplied in Noryangjin-dong, Dongjak District, in April this year — a roughly threefold gap. While the overall sale price of Complex A in Gangnam was about 200 million won higher than Complex B in Dongjak for 84㎡ units, Complex B's construction cost per 3.3㎡ exceeded A's by more than 15 million won.
The gap becomes even clearer when comparing construction costs as a share of the sale price. At Complex A, construction costs accounted for 19.5 percent of the sale price, with land costs making up the rest. At Complex B, construction costs made up 54.9 percent. Critics argue the figures are excessive, even accounting for premium materials and careful construction.
Sale prices consist of land costs and construction costs, and since land costs are determined by appraisal, construction costs effectively dictate the final price. In cap-regulated areas, add-on costs tacked onto various construction line items are limited and subject to individual review. In non-cap areas, however, detailed construction cost items are not disclosed. "In reconstruction projects, the association acting as the developer has a structural incentive to add various expenses to construction costs in order to maximize profits," an official at a major construction company said.
