900 Sq. Ft. Korean Apartment Construction Cost $150K

by Brendon Carr

More real estate and housing policy-related news caught my eye today. From the Maeil Kyungjae (sorry no link because this paper has joined the execrable Korea Herald in the movement against deep-linking):

85m² Apartment Basic Construction Cost to Rise 3.13 Million Won

The basic construction cost of an apartment house with a floor space of 85 square meters is to rise by 3.13 million won.

The Ministry of Construction and Transportation revealed Tuesday that it has decided to raise the basic construction cost which is used to calculate the price of an apartment house under a price cap, by 2.16 percent.

Basic construction costs are adjusted factoring in inflation rates every half year and the recent hike will be applied to apartment houses which plan to advertise for tenants on and after March 1.

Consequently, the basic construction cost of an apartment house with a floor space of 85m² and an area of 112m² is set to rise 3.13 million won (28,000 won per m²) to 148.36 million won. The selling price of an apartment house is determined by the basic construction cost, extra construction cost and land cost.

MOCT revealed the reason of its raising the basic construction cost that labor expenses which take up the largest part of overall construction expenses had climbed 2.65 percent for the past six months and prices of ferroconcrete—one of chief building materials—jumped 10.3 percent.

No, this is not a free-marketer’s rant about how wrong it is for the government to fix the official cost of construction. Maybe another day.

This information gives us an interesting “inside look” at the composition of costs for the housing that Koreans inhabit. This is information useful to employers, economists, and people considering whether Korea is a good place to do business. Costs of living get passed on to the employer in the form of wage demands. Government policies concerning the housing market—which former Pres. Roh Moo Hyun couldn’t resist trying to control—directly affect these costs.

According to MOCT, “basic construction cost” is essentially that work necessary to erect a reinforced concrete apartment tower, four walls and a roof—what’s known in the construction trade as “core and shell” completion. “Extra construction cost” is the work done to make the space habitable—construction of non-structural interior walls, interior decoration, installation of doors, flooring and appliances, plumbing and heating. Basically the customer gets a toilet and bathtub, plus a cheaply-equipped kitchen.

I’ve priced interior renovation for my (slightly larger) apartment. Costs range from W30,000,000 to W70,000,000—which at the higher end would involve tearing out an existing interior with which I’m not that happy, and installation of better toilets and washing facilities, plus bumping out the “veranda” to gain extra floor space. The veranda work would also include new windows to replace the drafty, ill-fitting shit that is basic with a new Korean apartment. For W100,000,000 my place could look like the Playboy Mansion.

So just to be conservative, let’s say that W50 million accounts for the “extra construction cost” necessary to complete that 34-pyong apartment. Construction, then, takes us to just around W200 million. That’s in no way a bargain, by the way—we’re talking about a 900 sq. ft. box (and the basic fit-out is real crap, too).

According to the math, the greatest contributor to the balance of the average apartment price is the cost of land. In an earlier Korea Law Blog entry (August 2007), I noted how Seoul apartments of the size we’re talking about here were selling for an average price of W570 million—this Maeil Kyungjae report says that price is comprised of W200 million for the apartment, W370 million for the minuscule slice of the land underlying the apartment tower.

While I’m not going to rant about an “official” construction cost, or even a price cap for apartments (dumb, dumb, dumb!), I would note that finding ways to control the costs of land will directly accrue to the pocketbooks of Korean consumers once there is some equilibrium achieved between supply and demand. Right now, there is still a housing shortage driving prices (despite the fact that Roh froze the market, the problem is still not enough homes).

Korean families want to live in bigger, more modern homes if they can at all afford it.

That means Lee Myung-bak’s government ought to be looking hard at regulations which constrain the developability of land—especially in the capital region—and the intensiveness of its use. And make re-development easier by streamlining the condemnation process for developers.

Stacking more apartments on each tower (i.e., build taller!), and making the towers closer together (and their neighborhoods therefore more walkable) will reduce the sliver of land that is attributed to each apartment—thus giving us denizens of Korea a chance at more affordable housing. Ending the ridiculous “greenbelt” regulations will enable more units to be constructed closer to where people live and work in Seoul.

See also my earlier, related posts on this topic:

Housing Policy and the Korean Dream
Is There Really a “Glut” of Housing in Korea?
Watch the Construction Companies: Korea’s Canary in the Mine
More Property Fallout: Kwangju Regional Construction Group Foundering
Builders Having Trouble Moving Apartments in Seoul
Housing Bubble: Home Supply Down 30% in 2008
More on Land-Use Regulation and Housing Prices, Plus News From Seattle

Whew! That’s quite a reading list. There will be a quiz, and Korea’s future prosperity and standard of living depends on it.

2 Responses to This Entry

1. Julian Stoev on February 28, 2008 @ 11:52 pm

   Deep linking problem in KH can be solved quite easy for now. The easy way: Install Opera web browser. Open the KH web page. Click on the article. They try to hide the article URL using some stupid script tricks. After opening the article, but as usual they assume particular browser. Mouse right click in the article text -> Frame -> Open in new tab. Here you have your URL.
   If they want to play clever, they can block this approach, but there are other ways around.

   One example: http://www.koreaherald.co.kr/NEWKHSITE/data/html_dir/2008/02/29/200802290023.asp

   Moving out of Korea in 2 days…

2. Chris Lott on February 29, 2008 @ 10:14 pm

   I’m afraid to do the math… what does that work out to be per acre, if 370 million won is the land cost for ONE apartment in a 15+ story building?  Sorry, acre isn’t the correct unit over here, probably square meter (or at these prices, probably square centimeter would be more appropriate).

Comments Policy: Comments to Korea Law Blog are moderated. This means abusive, or just plain stupid comments will be deleted. So don't be a jerk. It also means there may be some delay from the time you post a comment to the time it shows up here. If your comment wasn't against the policy, it will show up in a little bit.