[비즈한국] While the construction industry continues its trend of selective bidding for housing projects due to deteriorating profitability from rising raw material costs and labor expenses, a series of bidding wars for maintenance projects involving major construction firms is taking place in the second half of the year. Despite the sluggish market, aggressive bidding activities are still being observed in maintenance project sites where construction costs are guaranteed to a certain level.
According to the maintenance industry, DL E&C375500 and Doosan Construction011160 participated in the second round of bidding for the reconstruction of Dogok Gaepo Hanshin Apartments in Gangnam-gu, Seoul, which closed on the 1st, officially launching a bidding contest. This project involves reconstructing an apartment complex consisting of 620 units across 8 buildings into a new complex with 816 units across 7 buildings, located south of Maebong Station on Subway Line 3. The planned construction cost is around 9.2 million won per 3.3㎡ (total construction cost of 429.5 billion won).
Initially, the bidding for the selection of a contractor for this site, which closed in April this year, resulted in a failed bid. At the time, 10 companies, including DL E&C, Hyundai E&C000720, HDC Hyundai Development Company, Hoban Construction, Kumho Construction, Doosan Construction, Hyosung Heavy Industries, UMI Construction, Daebang Construction, and Hanyang, attended the site briefing, but not a single company submitted an actual bid.
Ha Myeong-guk, head of the Dogok Gaepo Hanshin Apartment Reconstruction Association, stated, "Many construction companies showed interest during the site briefing for the first round of bidding, but it seems they were hesitant due to the burden of a bidding war. Since the apartment's location is excellent, I was optimistic that companies would eventually participate. The construction cost is at a reasonable level now, just as it was then," adding, "Now that a competitive bidding process has been established, we will select the contractor at the general meeting."
There is another maintenance project site where a bidding war involving major builders has been set for the second half of the year. On the 21st of last month, Samsung C&T and HDC Hyundai Development Company participated in the bidding for the selection of a contractor for the Namyeong District 2 redevelopment project in Yongsan-gu, Seoul, resulting in a competitive bid. This project aims to redevelop old and dilapidated buildings between Sookmyung Women's University Station (Line 4) and Namyeong Station (Line 1) into a mixed-use complex featuring 565 residential units, 80 officetel units, and business/retail facilities. The planned construction cost is around 10.7 million won per 3.3㎡.
In the first half of this year, there were only two maintenance project sites where the top 10 construction companies in the country competed for the construction rights. These were the Busan Jin-gu Chokjin District 2-1 redevelopment project, which POSCO E&C won in January after competing with Samsung C&T, and the Yeouido Hanyang Apartment reconstruction project in Yeongdeungpo-gu, Seoul, which Hyundai E&C won after a bidding battle against POSCO E&C in March. Both of these projects had been conducting contractor selection bids since last year.
The remaining maintenance projects won by top 10 construction firms in the first half of this year were all through private contracts. Out of the 22 maintenance sites that selected a top 10 builder as a contractor in the first half, 20 (91%) failed to attract competition and proceeded with private contracts with single bidders. Under the Act on the Improvement of Urban Areas and Residential Environments and the Housing Act, project implementers like associations are required to select contractors through competitive bidding, but if bidding fails two or more times, they may proceed with a private contract.
The maintenance project sites where bidding wars among major builders were realized in the second half of this year are all considered to have excellent business feasibility. In the case of Namyeong District 2, where Samsung C&T and HDC Hyundai Development Company are competing, the construction cost is nearly 10 million won per 3.3㎡. Although there are only 112 association members, the project is granted a floor area ratio of up to 860%. Dogok Gaepo Hanshin, contested by DL E&C and Doosan Construction, features a prime location in Gangnam and has exceeded the 9 million won per 3.3㎡ mark, which the construction industry considers the "maginot line" for construction costs in the Gangnam area.
Lee Eun-hyung, a research fellow at the Research Institute of Construction Policy, commented, "As the cost ratio for housing projects rises and companies face tens of billions of won in losses at individual sites they have already secured, builders have no choice but to carefully evaluate profitability. It is a natural progression for construction companies to flock to projects that sufficiently reflect construction costs."