Construction Starts Sluggish Due to Interest Rate Hikes and Real Estate PF Impact
Residential Construction Area Down 27.5%
Residential Starts in Sejong and Daegu Drop to One-Tenth
High Possibility of Construction Investment Decline This Year
The building construction start area in 2023 decreased by 31.7% compared to the previous year. This is the lowest performance in 14 years since the financial crisis. As the building construction start area, a leading indicator of the construction market, shrinks, there is a high possibility that construction investment will also decline in the future.
The Hwaseong International Theme Park Complex Development Project is a plan to build a futuristic advanced complex city on a 4,189,000㎡ (1,270,000 pyeong) site within Songsan Green City, Hwaseong-si, Gyeonggi Province. The photo shows the construction site of the international theme park residential complex within Songsan Green City. Photo by Yongjun Cho jun21@
On the 24th, the Construction Industry Research Institute cited statistics from the Ministry of Land, Infrastructure and Transport and announced that last year's building construction start area was 75.68 million square meters, a 31.7% decrease compared to the previous year. This is the lowest figure since 2009, when construction starts sharply contracted due to the global financial crisis.
The institute explained, "Housing construction starts did not occur due to various complex factors such as soaring construction costs, rising interest rates, falling housing prices, and problems with real estate project financing (PF). Overall, the economy was not good, so not only commercial but also industrial building construction starts were contracted, which greatly affected the decline in construction start performance."
Last year, the residential building construction start area was 25.17 million square meters, down 27.5% from the previous year. This is the lowest in 13 years. Due to delays in redevelopment projects caused by conflicts over construction costs and sluggish housing demand leading to an accumulation of unsold units, housing sales were weaker than planned.
The decrease in residential building construction start area is more severe in provincial areas than in the metropolitan area. Compared to the previous year, the metropolitan area decreased by 23.4%, while provincial areas dropped by 30.3%. In particular, Sejong decreased by 90.2% and Daegu by 86.6%, with construction starts plummeting to about one-tenth of the previous year. Gyeongnam, Chungnam, and Jeju also decreased by around 50% compared to the previous year. Gwangju, Busan, and Incheon were better off than in 2022.
2023 Residential Building Construction Start Area Regional Growth Rate (Data=Konsanyeon, Source=Ministry of Land, Infrastructure and Transport)
Last year, the non-residential building construction start area was 50.51 million square meters, the lowest in 14 years. Except for education and social use, all categories decreased. The downturn was most severe in commercial, other, and industrial uses, in that order. Commercial (17.91 million square meters) decreased by 42.5%, other (14.04 million square meters) by 41.0%, and industrial (10.06 million square meters) by 26.4%. Education and social use (6.32 million square meters) increased by 2.0% compared to the previous year.
The non-residential building construction start area was more depressed in the metropolitan area than in provincial areas. The metropolitan area decreased by 38.2% compared to the previous year, while provincial areas fell by 29.3%. Seoul and Incheon were similar to 2022, but Gyeonggi Province decreased by 49.3%, showing the largest decline compared to the previous year. Daegu, Sejong, and Gyeongnam also decreased by more than 40% compared to the previous year.
The building construction start area is a leading indicator of the construction market, and construction investment, which increased by 1.4% last year, is expected to decline again this year. The Construction Industry Research Institute forecasted, "The time lag between changes in construction investment and building construction start area is about two years. Considering that the construction start area has contracted since 2022, construction investment is expected to decrease starting this year."
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