Standard construction cost rises 4.07% from July

The standard construction cost applied to apartments subject to the price ceiling on new apartments has risen 4.07% from the previous level — the second increase this year, following an off-cycle upward adjustment in July, as surging materials costs continue to push up building expenses.

As a result, the standard construction cost has climbed a cumulative 4.86% this year, from 2.22 million won ($1,660) per square meter to 2.33 million won. The sharp rise is squeezing construction firms on costs while forcing end-buyers to absorb higher pre-sale prices.

The Ministry of Land, Infrastructure and Transport said it will issue a notice Tuesday setting the standard construction cost for above-ground floors of units with an exclusive use area of 60 to 85 square meters in buildings of 16 to 25 stories at 2.33 million won per square meter, up 4.07% from the previous 2.24 million won. The ministry publishes the figure twice a year — on March 1 and Sept. 15 — but also made an off-cycle adjustment in July.

The ministry said it made the July adjustment after the price of high-strength rebar rose about 18.6% from the March regular notice through early June.

Including this latest regular notice, the cost converted to a per-3.3-square-meter basis now stands at 7.68 million won — up 356,000 won from 7.33 million won in March. Compared with the previous July notice of 7.38 million won per 3.3 square meters, the per-unit cost has risen 300,000 won in just two months.

The sharp rise in construction costs reflects not only swings in materials prices but also a significant increase in indirect construction costs. Key materials — including high-strength rebar, ready-mixed concrete, window glass, reinforced plywood flooring and aluminum formwork — have been pushed up by rising raw materials prices stemming from the war in the Middle East. In addition, the government's policy to strengthen safety investment support across all pre-construction phases led the Public Procurement Service to revise the indirect cost rate upward: the indirect labor cost rate rose from 14.6% to 18.1% and miscellaneous expenses from 6.0% to 6.9%, driving a broad increase in indirect construction costs. Indirect construction costs rose 9.77%, from 604,000 won to 663,000 won per square meter.

The revised construction cost will apply to projects that file for resident recruitment approval on Tuesday or later. The ministry said actual pre-sale prices are determined by local governments' pre-sale price review committees, which take into account the standard construction cost, land cost and other additional charges.

The adjustment raises the likelihood that pre-sale prices for apartments subject to the price ceiling will continue to climb. Data from the Korea Housing and Urban Guarantee Corporation show that the average pre-sale price for private apartments in Seoul first exceeded 60 million won per 3.3 square meters in May this year and has since hovered in the 62 million to 63 million won range. Industry officials say the adjustment will inevitably affect the add-on charges factored into pre-sale prices, and expect prospective buyers in the pre-sale market to become even more cautious.

"We plan to continue adjusting the standard construction cost in a reasonable manner, reflecting changes in construction materials prices, so that high-quality apartments incorporating the latest technologies and construction methods can be supplied," a ministry official said.

Meanwhile, the standard construction cost applies to apartment complexes sold in public and private land development zones subject to the price ceiling on new apartments, covering Gangnam, Seocho, Songpa and Yongsan-gu.