South Korea’s major construction companies are grappling with surging construction costs. (Image courtesy of Yonhap)
SEOUL, Feb. 17 (Korea Bizwire) — Amid a real estate market downturn, South Korea’s major construction companies are grappling with surging construction costs that have pushed their cost-to-sales ratios above 90%, triggering disputes and lawsuits over cost increases between builders and project owners.
According to industry sources, among top-ranked construction companies, Hyundai Engineering & Construction and Kumho Engineering & Construction reported cost-to-sales ratios of 100.6% and 104.9% respectively for 2024, based on preliminary results.
A cost-to-sales ratio exceeding 100% indicates that expenses exceed revenue. Hyundai E&C recorded an operating loss of 1.22 trillion won for 2024, its first earnings shock in 23 years. Kumho E&C also swung to a loss, posting an operating deficit of 181.8 billion won.
Other major builders reported similar struggles. Daewoo Engineering & Construction saw its operating profit decline 39.2% year-over-year, with a cost-to-sales ratio of 91.2%. GS Engineering & Construction and HDC Hyundai Development Company reported ratios of 91.3% and 90.9% respectively, while Samsung C&T’s construction division (89.4%) and DL E&C (89.8%) approached the 90% mark.
The average daily wage in South Korea’s construction industry will increase by approximately 2% in the first half of 2025. (Image courtesy of Kobiz Media)
The average cost-to-sales ratio for six of these companies, all ranked within the top 10 by construction capability, reached 92.2%. Other significant players reported similarly high ratios: Dongbu Construction at approximately 97%, Doosan Engineering & Construction at 91.2%, and Samsung Engineering & Architecture at 84.9%.
The surge in construction costs has been primarily driven by rising raw material prices and labor costs, exacerbated by the COVID-19 pandemic and the Russia-Ukraine war. The construction cost index jumped 27.6% from 102.04 in December 2020 to 130.18 last December.
“The cost-to-sales ratio hovered around 85-87% between 2017 and 2020. Exceeding 90% is quite high and indicates significantly reduced profit margins for construction companies,” said Park Cheol-han, a research fellow at the Korea Research Institute for Construction Policy.
The cost increases have led to numerous disputes. Doosan Engineering & Construction and Kolon Global recently increased their contract price by 84.5 billion won for the Sky City apartment project in Gimhae. While they reached an agreement with the housing association, some members have strongly opposed the increase.
GS E&C has demanded an additional 485.9 billion won for the Maple Xi reconstruction project in Seoul’s Sinbanpo area, filing a lawsuit for 257.1 billion won. With move-in scheduled for June, continued conflict could affect up to 10,000 households in the rental market, according to real estate experts.
Some projects have managed peaceful resolutions. Hyundai E&C successfully negotiated an increase from 5.48 million won to 7.93 million won per 3.3 square meters for the Banpo Public Housing Complex reconstruction project, bringing the total construction cost to 3.89 trillion won.
Industry experts predict construction costs will remain elevated. The Korea Research Institute for Construction Policy noted in its 2025 outlook report that “construction costs are expected to remain high, preventing any rapid improvement in construction companies’ business conditions.”
“With fewer projects initiated in 2022-2023, construction companies’ revenues are likely to hit their lowest point between now and the first half of next year,” Park added.
M. H. Lee (mhlee@koreabizwire.com)
