Construction companies struggling, maintenance market cooling down… “The order itself is a risk”

“The order itself has become a risk.”

An official from a large construction company explained the construction industry’s recent attitude toward the maintenance market as follows. It has become difficult to find competitive orders between construction companies as in the past. There are many cases where no construction company steps forward to work at a business site where profitability is not guaranteed. If you forcefully pursue competitive orders, you may end up losing only business expenses and having to engage in a painful war of nerves with the union throughout the business.

According to the construction industry on the 24th, there has been a noticeable increase in the number of construction companies taking a conservative stance when winning orders for maintenance projects recently. Yongsan Sanho Apartments is a representative example. Even though it is an apartment with a view of the Han River, no one participated in the construction bid closing on the 15th. As of last February’s on-site briefing session, eight construction companies had participated.

Construction companies believe that unfavorable conditions have been created for maintenance projects, such as rising prices, increased construction costs, and the impact of interest rates. On December 28 of last year, the government confirmed and announced that the criteria for selecting a contractor for the Seoul Metropolitan Government’s maintenance project would be extended after the approval of the establishment of the cooperative, and called for selecting a contractor early to speed up the project. However, market conditions are making these measures useless.

Moreover, due to various negative factors and issues in the construction industry, normal business activities have become difficult for some large construction companies. The GS Construction accident in Geomdan City, Incheon and the HDC Hyundai Development Company accident in Hak-dong, Gwangju led to quality problems. Daewoo Engineering & Construction was acquired by Jungheung Construction, a mid-sized company, and Lotte Engineering & Construction suffered a decline in consumer confidence due to issues with project financing (PF) funds.

An official from a large construction company said, “In fact, among the top 10 construction companies, we believe that only Samsung C&T, Hyundai Engineering & Construction, and DL E&C are operating normally in the market.”

It is because of this atmosphere in the construction industry that POSCO E&C is the only company that stands out in the maintenance business sector. After launching ‘Otiere’ as a high-end brand, the company has lowered construction costs and is seeking orders. The reason it beat out Samsung C&T and won the right to redevelopment of Busan Citizens’ Park Zone 2-1 was because it set unconventional conditions. In the case of the Noryangjin District 1 redevelopment project, it is expected to enter without blood as it is the only one that has expressed its intention to bid. However, the outlook is growing stronger that POSCO E&C will also receive selective orders in the future following the recent arrival of ‘financial leader’ CEO Jeon Jung-seon.

SK Eco Plant is also pursuing a niche strategy focusing on small businesses to win orders with the luxury brand ‘Depine’. SK Eco Plant plans to apply ‘DeFine’ to ‘New Banpo 27th’ in a small complex in Banpo. In addition, ‘DeFine’ will be applied first to previously received orders, including the redevelopment of Gwangan District 2 in Busan, the redevelopment of Districts 2 and 7 in Noryangjin, Seoul, and the reconstruction of Samsung 1 in Gwangjang-dong, Seoul.

The construction industry expects that the trend of selectively receiving orders from places with guaranteed profitability will continue for the time being. Even if the number of complexes permitted for reconstruction increases, construction companies are likely to take a wait-and-see approach. However, in places with symbolic significance, such as Apgujeong, construction companies can also engage in competitive bidding.

An official from a large construction company said, “Because the construction industry itself is so bad, it is not easy for construction companies to participate in projects where profits are not guaranteed,” adding, “Most construction companies are watching the current situation and looking for suitable business sites.”

An official from another large construction company said, “From a construction company’s perspective, we do not want to spend marketing and sales costs that are not beneficial to either the union or the construction company,” adding, “We are willing to participate in competitive bidding, even taking the risk of sunk costs if we do not win an order.” “I don’t do it,” he said.