Construction Halt and Move-in Delays... Construction Companies Struggle with 'Unsold Housing Bomb'

Daegu 'The Sharp Dalseo Centelle' Construction Abruptly Halted
'Hanwha Forena Jeju Edu City' Move-in Indefinitely Postponed
Aftermath of Unsold Unit Crisis Spreads Nationwide

The domestic construction industry is staggering due to unsold units. As the housing market shrinks because of high interest rates and economic recession, the increase in unsold units is causing various problems such as construction halts and delayed move-ins across the country.

According to the construction industry on the 10th, POSCO E&C recently temporarily suspended construction of ‘The Sharp Dalseo Centelle’ in Dalseo-gu, Daegu. Construction stopped due to disagreements with the developer over the sale price and methods. The ‘Hanwha Forena Jeju Edu City’ in Jeju, constructed by Hanwha’s construction division, has had its move-in indefinitely postponed amid legal disputes between the developer and the contractor. Both sites share the commonality of being unsold projects with low sales rates.

Shovel Stopped in Daegu, the 'Unsold Unit Graveyard'

Perspective view of The Sharp Dalseo Centelle. Provided by POSCO E&C.

‘The Sharp Dalseo Centelle’ is a residential-commercial complex to be built in Dalseo-gu, Daegu, with 4 basement floors and 44 above-ground floors, totaling 272 units. Although the structural work has been completed, construction was ultimately halted due to difficulties in recovering construction costs caused by low sales rates.

Alpha City H&J, the developer of this project, started the business in 2021 by raising 110 billion KRW through project financing (PF). However, with over 90% of units remaining unsold, the project could no longer continue. A POSCO E&C official stated, "We judged that construction costs were being spent blindly and decided to halt construction abruptly," adding, "We are discussing post-sale options through consultations with the developer."

High sale prices and the challenging situation in Daegu, known as the ‘unsold unit graveyard,’ have been catalysts for the surge in unsold units. According to housing statistics recently released by the Ministry of Land, Infrastructure and Transport, as of December last year, Daegu had 8,807 unsold units, the second highest among local governments nationwide. In Daegu, Dalseo-gu has the largest number of unsold units (2,805 units). Additionally, apartment sale prices in Daegu have been declining for 64 consecutive weeks.

Waiting to Move In, Then a 'Bolt from the Blue'

Perspective view of Hanwha Forena Jeju Edu City. Provided by Hanwha Construction Division.

‘Hanwha Forena Jeju Edu City’ has more than half of its total 503 units unsold. This is a large luxury brand complex adjacent to Jeju English Education City. It once attracted high interest from prospective buyers. However, setting the sale prices between 670 million KRW and 3.8965 billion KRW led to a flood of unsold units. Moreover, conflicts between the developer, Hypex, and the contractor, Hanwha Construction Division, delayed the completion approval. Move-in, originally scheduled for January this year, has been indefinitely postponed.

The two parties are engaged in litigation over contracts and design changes. With no signs of a quick resolution, buyers are bearing the brunt of the damage. This project is also expected to negatively impact the financial soundness of Hanwha’s construction division. According to Hanwha’s business report, as of the third quarter last year, accounts receivable from this project reached 218 billion KRW. The construction company cautioned against overinterpretation, stating, "Cash liquidity is sufficient." However, the industry expects that if the situation prolongs, the burden will inevitably increase.

Meanwhile, according to the ‘December 2024 Housing Statistics’ recently released by the Ministry of Land, Infrastructure and Transport, the number of unsold houses nationwide increased by 7.7% (5,027 units) from the previous month to 71,730 units. With difficulties in securing funding compounded by unsold units, more construction companies lack the capacity to continue construction. Some are going out of business or facing bankruptcy. If this trend continues, there are concerns it could escalate into an additional real estate PF insolvency crisis.