"‘Rising Costs Amid Real Estate Slump’, Construction Industry Loses Motivation"

Housing Construction Area and Performance Decrease by 35% and 30% Respectively
Could Lead to Severe Supply Shortage in 2-3 Years

[Asia Economy Reporter Cha Wanyong] The construction industry appears to have lost its enthusiasm due to the combined effects of the housing market slump and rising raw material prices. Even projects that have received pre-sale approval are delaying their groundbreaking. Some express concerns that if the housing market recovers, it could lead to a supply shortage.

According to the Ministry of Land, Infrastructure and Transport on the 26th, the floor area of residential building construction started in the first half of this year remained at 17.62 million square meters. This is more than a 35% decrease compared to the 26.96 million square meters started in the first half of last year. The decrease in the floor area of residential building construction means that apartments, multi-family houses, and multiplex houses are not being built.

In fact, the nationwide housing construction starts in the first half of this year totaled 188,449 units, a 30.0% (80,840 units) decrease compared to 269,289 units in the same period last year. By housing type, apartment construction starts nationwide were 139,759 units, down 30.1% year-on-year, and non-apartment housing starts were 48,690 units, down 29.7% year-on-year.

On the other hand, housing permits in the first half of the year nationwide totaled 259,759 units, a 12.6% increase compared to the first half of last year. As construction costs rose sharply due to increased raw material prices, construction companies postponed groundbreaking and pre-sales, leading to a decline in performance.

Considering that it takes about 2 to 3 years from groundbreaking to occupancy, if housing demand recovers in 2 to 3 years, it could lead to a serious supply shortage. Amid this situation, the housing market is becoming increasingly sluggish, and the number of housing construction starts is expected to decrease further.

The index forecasting the housing business market has been declining for four consecutive months. With worsening pre-sale conditions and soaring raw material prices, negative factors are piling up across the construction industry, suggesting that the housing market slump will continue.

According to a survey conducted by the Housing Industry Research Institute targeting about 500 member companies of the Korea Housing Association and the Korea Housing Builders Association on the perceived housing construction business climate, the national outlook index this month was 49.3, down 11.1 points from July's 60.4, showing a decline for four consecutive months. A value below the baseline (100) means a higher proportion of companies expect the market to worsen.

The Housing Industry Research Institute explained, “Due to the surge in construction raw material prices, worsening pre-sale conditions, and economic recession, new housing construction orders have decreased,” adding, “The housing market slump is expected to continue for a considerable period.”