Apartment complexes in non-Gangnam areas of Seoul, which are exempt from the Housing Price Ceiling System, are increasingly reporting construction costs that exceed half of their sale prices. Critics say a structure has taken root in which reconstruction associations exploit the absence of disclosure requirements for detailed construction cost items to add various expenses to construction costs, pushing up sale prices.
According to the Seoul Economic Daily's analysis on the 12th of recruitment notices for apartment complexes sold in Seoul over the past year via the Korea Real Estate Board's Cheongyak Home system, construction costs accounted for more than half of sale prices in some complexes not subject to the price ceiling system. In some cases, even when the same builder constructed the apartments, construction costs for non-Gangnam complexes were set two to three times higher than for high-end apartments in Gangnam.
The gap becomes clear in numerical comparisons. For complexes subject to the price ceiling system, "Banpo Raemian Trinione" and "Yeoksam Central Xi" had construction cost ratios of 17.5% and 19.5%, respectively, for the 84-square-meter exclusive-use area, both below 20%. "Autier Banpo," supplied in Banpo-dong, Seocho-gu last month, sold 84-square-meter units for 2.52 billion to 2.76 billion won, with construction costs of 690 million to 760 million won, or 27.6% of the sale price.
Banpo Raemian Trinione is a complex built by Samsung C&T with a living room ceiling height of 2.55 meters based on a coffered ceiling, and high-end landscaping, exterior, and community facilities. Despite substantial construction expenditure, the construction cost per 3.3 square meters (based on contract area) for the 84-square-meter unit came to just 7.75 million won due to the application of the price ceiling system. In contrast, the construction cost per 3.3 square meters for the same unit size at "Raemian Ellavine," which the same Samsung C&T launched in Banghwa-dong, Gangseo-gu in March this year, was 13.7 million won. Construction costs for apartments built by the same company around the same time differed by nearly twofold.
"While the contractor's profit is part of it, the association sets the sale price by adding its own costs and others to secure profits," an official at a major construction company said. "Since the price is fixed first and the construction cost shown in recruitment notices is what remains after deducting the fixed land cost, non-Gangnam apartment construction costs appear much higher than those in Gangnam."
The background enabling this structure lies in the asymmetry of sale price calculation methods. Complexes subject to the price ceiling system disclose land costs, construction costs, and additional costs by item, and undergo verification by the Sale Price Review Committee. This applies to the three Gangnam districts (Gangnam, Seocho, and Songpa) and Yongsan-gu. In contrast, complexes in other areas need only list the combined total of land and construction costs in recruitment notices, with no obligation to break down and disclose direct and indirect construction costs, design fees, supervision fees, and incidental expenses by item. While land costs can be estimated from nearby market prices, there is no way to externally verify construction cost details.
Experts agree on the need to expand the price ceiling system or introduce item-by-item review and verification mechanisms for sale prices in non-applicable areas. Under the current structure, reconstruction associations acting as redevelopment project operators maximize profits by raising general sale prices as much as possible, and the resulting sale prices trigger a "price-matching" effect that stimulates surrounding market prices, repeating a vicious cycle that drives up housing prices.
