[MarketING] Construction Stocks, Will the Eased Real Estate Regulations Be Just a Breeze?

Temporary Rebound Due to Deregulation
Unable to Sustain Strong Momentum

On the 5th, the KOSPI opened at 2268.20, up 12.22 points (0.54%) from the previous trading day, with related indices displayed in the Hana Bank dealing room in Jung-gu, Seoul. The won-dollar exchange rate started at 1271.0 won, down 0.7 won from the previous trading day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Song Hwajeong] Although the government’s large-scale easing of real estate regulations raised expectations of a positive impact on the long-frozen construction stocks, experts predict that the effect will be limited and only a mild breeze, as it is unlikely to change the overall market trend. However, experts foresee that investment sentiment will gradually improve as housing indicators show signs of recovery after February.

Construction Stocks Hitting 52-Week Lows Rebound on Regulatory Easing but Face Limits

As of 10:15 a.m. on the 5th, the KOSPI Construction Industry Index stood at 73.32, down 0.17 points (0.23%) from the previous day. After starting lower, it briefly turned upward but then fell again, fluctuating around the flat line in early trading.

The previous day saw a 3.35% rise, marking two consecutive days of gains, reflecting optimism about regulatory easing. On the 3rd, major construction stocks such as Hyundai Engineering & Construction, GS Engineering & Construction, HDC Hyundai Development Company, and Daewoo Engineering & Construction all hit 52-week lows but managed to rebound thanks to the easing measures. The KOSPI Construction Industry Index had fallen nearly 13% over the past month, ranking among the lowest in sector indices.

On the 3rd, the Ministry of Land, Infrastructure and Transport announced measures to ease regulations for a soft landing of the housing market. The plan included the complete removal of real estate regulation zones outside the Seoul Gangnam 3 districts and Yongsan district, a significant reduction in areas subject to the price ceiling system, relaxation of resale restrictions, and easing of interim payment loan regulations.

Despite Major Regulatory Easing, Limits Remain in Changing Real Estate Market Trends

Although most of the regulations that had constrained the real estate market were lifted, construction stocks have not maintained a strong upward trend because these measures are expected to be insufficient to change the overall market flow.

Kim Sunmi, a researcher at Shinhan Investment Corp., said, "The swift implementation of real estate regulatory easing is positive, but there are limits to reversing the housing market trend with this easing package. Despite the relaxation of loan regulations, the burden on homebuyers has significantly increased due to high interest rates, and with the prevailing outlook for falling housing prices, homebuyers’ future household income prospects are declining." She added, "Unless the current high interest rate environment eases, actual housing transaction volumes will only partially recover."

Kang Kyungtae, a researcher at Korea Investment & Securities, said, "The government’s stance, including this large-scale real estate regulatory easing and the purchase of unsold homes, will support the bottom of the secondary market and new housing sales market. However, it is expected to take considerable time to stimulate a rebound in household housing demand under the high interest rate environment."

However, housing indicators are expected to improve from February onward, which should somewhat ease investment sentiment. Researcher Kim said, "Improvements will appear in housing indicators after February. The abolition of the obligation to dispose of existing homes will reduce fire sales, housing price volatility is expected to decrease, and if housing transaction volumes recover in certain price ranges due to the easing of loan regulations, the sluggish occupancy rates of new apartments caused by delays in selling existing homes will also improve." She added, "After February, when construction companies’ earnings adjustments conclude, investment sentiment toward the construction sector is expected to improve, supported by better housing indicators and government housing regulation easing."