Recently, construction costs have surged due to rising raw material prices and labor costs, leading construction companies to increasingly form consortiums in the reconstruction and redevelopment bidding market. Not only mid-sized and small construction companies but also large construction companies are joining forces, and trust companies are also entering joint bids.
According to the maintenance industry on the 10th, a consortium of DL E&C and Hyundai E&C was finally selected as the contractor for the public redevelopment project in the 'Jangwi 9 District' of Seongbuk-gu, Seoul, on the 28th of last month. The second-largest construction company (Hyundai E&C) and the fifth-largest (DL E&C) have teamed up.
Additionally, for the 'Gocheok Prugio Hillstate' (Gocheok 4th Housing Redevelopment Project) that will begin selling on the 19th of this month, a consortium of Daewoo E&C and Hyundai Engineering is participating, while a consortium of POSCO and Hanwha's construction division is participating in the 'Goyang The Sharp Forena' (Goyang Wondang 1st District Housing Redevelopment Project) that will be launched on the 12th of this month.
Last year, the large complex Olympic Park Foreon, which consisted of 12,032 dwellings, was constructed by a consortium of four major construction companies: Hyundai E&C, HDC Hyundai Development Company, Daewoo E&C, and Lotte Construction.
Trust companies are also forming consortiums. A prominent example is a consortium formed by KOREIT and Korea Land Trust, which was selected as a joint preliminary trustee for the reconstruction project of the Junggye Mujigae Apartment in Nowon-gu, Seoul last month.
The consortium method allows construction companies to distribute financial and human resource burdens and combine brands to enhance business viability. With the recent rise in construction costs increasing project risks and the economic downturn causing difficulties for construction companies, there is a growing interest in forming consortiums.
A representative from a large construction company noted, 'For large projects exceeding 3,000 dwellings, there is a burden for a single construction company to handle, so they form consortiums, while for projects of about 1,500 to 2,000 dwellings, they consider efficiency and economic viability in forming consortiums.' They added, 'Due to the recent real estate market downturn and rising construction costs, if competition for orders occurs, the risks, such as advertising expenses, are high. In such times, they form consortiums to secure optimal business viability through selection and concentration.'
However, many maintenance project associations prefer not to use consortiums due to concerns that bidding competition has decreased, making it difficult to demand desired conditions, and that accountability may become unclear. There are also responses indicating that complexes with multiple brands may lose value in terms of premium.
In particular, high-value redevelopment complexes in the Gangnam area have proposed 'no consortium' as a condition for selecting contractors. The redevelopment association for 'Gaepo Woosung 7th' in Gangnam-gu, Seoul, explicitly stated 'prohibition of consortiums' in the contractor selection announcement. It is reported that similar conditions were proposed for 'Sinbanpo 4th' in Seocho-gu and 'Gaepo Jugong 6th and 7th' in Songpa-gu.
A representative from a maintenance project association stated, 'The association has no choice but to prefer single-brand apartments for the sake of reputation. There is also concern about unclear accountability regarding construction results,' and added, 'Especially many people expect better conditions and financial benefits to arise from cutthroat competition, as seen in Hanan 4 District.' The Hanan 4 District has seen a fierce competition between Samsung C&T, ranked first and second in construction capability evaluation, and Hyundai E&C, offering extraordinary conditions such as a maximum of four years deferral of contributions and a minimum of 1.2 billion won in moving expenses per household, along with a 100% guarantee of Han River view rights.
Meanwhile, the construction industry is reacting that the increase in consortium formations is inevitable as the market has been unfavorable and the industry is facing difficulties. A representative from a large construction company commented, 'From the association's standpoint, competition among construction companies often leads to better designs and reduced construction costs, which is preferred. Still, from a corporate perspective, the worse the market is, the more they want to avoid competition,' stating that 'for the time being, due to the selective order trend, most cases will either switch to negotiated contracts through single bids or form consortiums.'