Small and Medium-Sized Regional Builders Hit Hard by Real Estate Slump and Rising Costs
Construction Market Downturn Expected to Continue This Year
Closures in the construction industry are continuing this year. On average, 12 construction companies have shut down each day this month alone. In particular, small and medium-sized local companies vulnerable to financial difficulties are collapsing due to the real estate slump and soaring construction costs. Experts believe that a rebound in the construction market this year will be difficult.
According to the Construction Industry Knowledge Information System of the Ministry of Land, Infrastructure and Transport on the 30th, the number of construction company closure reports (including changes, corrections, and withdrawals) this year totaled 317. Simply put, 12 companies closed every day. Among them, 61% (192 companies) are local companies outside the metropolitan area (Seoul, Gyeonggi, Incheon).
The Korea Construction Industry Research Institute stated in its recently released "Monthly Construction Market Trends for January 2025" report that "the increase in the number of closed companies, the contraction of registered companies, and the decrease in construction employment are typical signs of a construction market downturn," adding, "Although construction orders, a leading indicator, showed favorable results led by the private sector in November last year, construction performance, a coincident indicator, has declined for seven consecutive months, indicating continued sluggishness."
◆ Daejeo, Shintaeyang, Jeil... Regional Construction Companies Collapsing = The combination of the real estate slump and rising construction costs is hitting local medium and small construction companies with relatively weaker financial power.
This year, following Shindonga Construction, ranked 58th in construction capability evaluation, Daejeo Construction, the second-largest construction company in the Gyeongnam region (ranked 103rd), recently filed for court receivership (corporate rehabilitation procedure).
Earlier, in November last year, Shintaeyang Construction, ranked 7th in the Busan area, submitted a court receivership application, and in December of the same year, Jeil Construction, ranked 4th in the Jeonbuk region, was finally declared bankrupt after failing to overcome unsold housing burdens.
According to the Construction Industry Research Institute, the construction cost index in November last year was 130.26, which is 29% higher than November 2020 (100.97), before the sharp rise in construction costs.
◆ Impact of Decreased Building Starts... Construction Market Slump Inevitable = Experts have a bleak outlook for the construction market this year as well.
The Korea Institute of Construction Policy Research expects construction investment to decrease by 1.2% from the previous year, falling below 300 trillion won.
Researcher Park Seon-gu of the Construction Policy Research Institute pointed out that the construction business sentiment index is at its lowest level since the financial crisis, and regional polarization has intensified. Park said, "Since major leading indicators such as building starts decreased significantly in 2022-2023, a construction market slump this year is inevitable."
The Construction Industry Research Institute forecasts that construction investment will decrease by 2.1% this year, reaching 295 trillion won. Public orders are also expected to decline by 1.7% due to a reduction in the social overhead capital (SOC) budget.
Researcher Lee Ji-hye of the Construction Industry Research Institute said, "We need to build the strength to overcome difficult times," adding, "We should focus on technological investment to reduce costs and increase productivity, and strengthen safety and quality management through smart technologies."
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