[Reporter’s Notebook] Will Construction Companies Be Managed Only After They Collapse?

The unsold housing crisis is severe. The number of unsold homes after completion, considered "malignant unsold," has exceeded 20,000 units, marking the worst level in 10 years. The provinces, suffering from population decline and weakened demand, are particularly problematic. Among them, Daegu (2,674 units) is the most difficult.

If houses remain unsold until they are fully built, construction companies face increasing financial burdens. Although the project period has ended, no money comes in, intensifying pressure to repay funds and pay interest. Failure to endure this hardship leads to bankruptcy. This is not just a problem for one developer or contractor. Rumors spread, freezing cash flow across the industry. As financially weak construction companies begin to collapse one by one, a domino effect of bankruptcies occurs.

Small and medium-sized construction companies are especially driven into a corner. Typically, these companies have weak financial mobilization capabilities, failing to secure expensive land in the metropolitan area or losing out in redevelopment project bids, so they seek survival in the provinces. The domino effect of construction company bankruptcies extends to the financial sector. Small savings banks that lent money to financially weak construction companies find themselves on the brink as they cannot recover their loans.

Given the seriousness of the situation, the political sphere has stepped in. On the 4th, the People Power Party held a party-government meeting and requested the government to ease the Debt Service Ratio (DSR) regulations to resolve unsold housing in non-metropolitan areas. The idea is to loosen loan regulations to encourage home purchases.

The financial sector also points out that current measures against unsold housing are mere stopgap solutions. They believe that targeted policies like buying up unsold units cannot stop the problem. They argue that the entire market must be revitalized. A banking official said, "Despite lowering prices and holding special events, the number of unsold units is increasing, so it seems difficult to resolve the issue simply by easing DSR," adding, "Unless long-term policies that can induce population inflow into provinces, such as easing resale restrictions, reducing transaction and capital gains taxes, and lifting designation as regulated areas, are implemented simultaneously, unsold housing will continue to rise."

The government alone remains lukewarm about resolving unsold housing. It prioritizes speeding up the execution of existing policies like the '8·8 Supply Plan' over additional measures. They want to observe the effects of measures implemented since early this year, such as the special holding for one household one house and a 50% reduction in the original acquisition tax.

In response to the political demands mentioned earlier, the government said it would "swiftly implement existing measures such as early launch of Corporate Restructuring (CR) REITs." However, no REIT registrations have been approved in the past 10 months. REITs want to buy unsold homes cheaply, but construction companies say that selling cheaply would not generate enough funds for survival.

Measures must be taken before the market collapses. The actual number of malignant unsold units may be higher than government announcements. When compiling figures, construction companies do not honestly reveal their vulnerabilities. This means the crisis triggered by unsold housing could arrive sooner than expected. Effective measures to revitalize the entire market are needed before it is too late.