Conflicts between construction companies and reconstruction and redevelopment associations over high-end brands are escalating, leading to contract terminations and lawsuits. Associations are demanding the application of luxury brands to enhance asset value and sales competitiveness, while construction companies are limiting their use due to concerns over brand scarcity and profitability.
According to the construction industry on June 29, the application of high-end brands has become a key factor in selecting construction companies for major reconstruction projects. In the past, construction costs and project conditions were the main sources of conflict, but now the choice of brand is emerging as a critical issue influencing member votes and the potential for changing construction companies.
A notable example is the redevelopment project in the Sangdaewon 2 district of Seongnam, Gyeonggi Province. DL E&C secured construction rights in 2015 and signed a contract with the association in 2021 based on the application of the general brand 'e-Pyeonhansesang.' However, as the association demanded the use of the high-end brand 'Acro,' tensions arose. When DL E&C expressed reluctance, the association moved to terminate the contract and initiate the selection of a new construction company, prompting DL E&C to respond with legal action.
Similar conflicts have occurred in the Shindang 8 district of Jung-gu, Seoul, and the Heukseok 9 district of Dongjak-gu. In Shindang 8, after a dispute over the application of Acro, the association terminated its contract with DL E&C and selected POSCO E&C as the new construction company. In Heukseok 9, following conflicts over high-end brands and design changes, the association ended its contract with Lotte Engineering & Construction and chose Hyundai Engineering & Construction instead. This process saw construction costs rise from approximately 449 billion won to over 650 billion won.
The demand for high-end brands is also complicating the selection of construction companies. In April, the redevelopment association in the Machon 5 district of Songpa-gu set conditions for participation based on top-tier brands, but no construction companies submitted bids, resulting in a failed selection. Industry insiders view this as a clear indication of the gap between the associations' brand expectations and the construction companies' assessments of project viability.
Construction companies are cautious about applying high-end brands because they must manage both brand scarcity and profitability. High-end brands typically involve specialized exteriors, premium finishing materials, and expanded community facilities, leading to higher construction costs compared to general brands. There are also concerns that applying high-end brands across all projects could dilute their value.
Conversely, associations believe that high-end brands are directly linked to project success. They expect that securing a prestigious image will enhance asset values for members and increase competitiveness in general sales. This trend is particularly strong as rising construction costs have increased the burden of contributions, prompting associations to seek future price appreciation through branding and product quality.
As the application of high-end brands expands beyond Gangnam to key reconstruction projects in the metropolitan area and other regions, some assess that the distinctiveness of existing brands has diminished. Consequently, some associations are requesting unique names or project concepts that reflect the identity of their developments, going beyond existing high-end brands. An example is Samsung C&T's proposal of 'Cullinan Apgujeong' during the bidding process for the Apgujeong 4 district. However, Samsung C&T maintains that Cullinan is not a separate high-end brand but rather a project concept for that location.
Lee Eun-hyung, a senior researcher at the Korea Construction Policy Institute, stated, "If construction companies do not apply high-end brands, they may face disadvantages in bidding competitions, forcing them to choose between maintaining brand value and expanding contracts. If high-end brands become mainstream and lose their scarcity, there may be a demand for even higher-tier new brands or unique names for individual projects."
* This article has been translated by AI.
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