[Cheopcheopsanjung Real Estate] "Next Year's Construction Orders Lowest in 3 Years... House Prices Also Down 2.5%"

"SOC Budget Cuts Lead to 7.5% Decline in Construction Orders"
Jeonse Prices Expected to Rise 0.5% Due to Increased Purchase Demand

Apartment view in the Songpa-gu area of Seoul / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Noh Kyung-jo] The construction and real estate markets, currently experiencing an unprecedented ice age, are expected to contract further next year. Experts predict that construction orders will sharply decline to the lowest level in three years, and the rate of house price decline will be greater than this year.

Park Cheol-han, a research fellow at the Korea Construction Industry Research Institute, stated at the '2023 Construction and Real Estate Market Outlook Seminar' held on the 2nd at the Construction Hall in Nonhyeon-dong, Gangnam, "Construction orders, which recorded an all-time high of 223.5 trillion won this year, are expected to show the lowest performance in three years next year."

The order amount is expected to record 206.8 trillion won, a 7.5% decrease compared to this year. The main causes cited were a reduction in social overhead capital (SOC) budgets, rising benchmark interest rates, and increased market uncertainty.

By ordering sector, public orders are expected to decrease by 3.1%, and private orders by 9.0%. By construction type, civil engineering and housing orders are expected to decrease by 3.8% and 6.3% respectively, while non-residential building orders are projected to drop by 11.5%. Although there is potential for an increase in petrochemical plant orders, Park noted that orders are expected to be sluggish due to a decrease in machinery installation work within semiconductor factory sites.

Construction investment is also expected to remain weak, with sluggishness anticipated in the commercial building and civil engineering sectors. Credit crunches have already occurred across development projects due to interest rate hikes and strengthened financial regulations on real estate project financing (PF) businesses.

The real estate market next year is expected to see a 2.5% decline in nationwide housing sale prices. Regionally, a 2.0% drop is forecasted in the Seoul metropolitan area and a 3.0% drop in provincial areas. This is attributed to the already high absolute housing prices and the continuation of a high-interest rate environment exerting downward pressure on prices.

Kim Seong-hwan, an associate research fellow at the Korea Construction Industry Research Institute, said, "An increase in demand is expected due to the easing of housing-related regulations announced on the 28th of last month," but added, "It is difficult to expect an influx of demand sufficient to change the market trend."

However, jeonse (long-term lease) prices are expected to rebound slightly (0.5% increase) due to a decrease in purchase demand. Although the position of jeonse in the rental market has relatively shrunk, overall rental demand is increasing, and monthly rent prices are rising sharply, making it difficult for jeonse prices to continue falling.