Daebang Construction CEO Indicted, Court Ruling on Hoban Construction's 60.9 Billion Won Fine Imminent
Woomi Construction and Joongheung Construction Also Awaiting Fine Decisions
Government Eases Regulations Amid Ongoing Sanctions... Criticism Over "Policy Flip-Flopping"
The aftermath of the so-called 'swarm bidding,' where multiple affiliates mobilize to win bids on public land, is expected to soon hit the construction industry. Recently, the CEO of Daebang Construction was indicted by the prosecution, and a court ruling on Hoban Construction's appeal against a fine worth hundreds of billions of won is imminent. Fines imposed on Joongheung Construction and Woomi Construction following investigations by the Fair Trade Commission (FTC) are also forthcoming. However, as public land failed to sell due to the recent economic downturn, the government has lifted related regulations. The industry criticizes this as contradictory, arguing that legal responsibilities should have been enforced or the regulations should not have been eased.
According to the construction industry on the 26th, the Seoul High Court will deliver its ruling on the 27th regarding the administrative lawsuit filed by Hoban Construction against the FTC. The lawsuit seeks to cancel the 60.9 billion won fine imposed by the FTC in 2023 on Hoban Group and its nine affiliates. The FTC's disciplinary action corresponds to the first trial, and appeals proceed through the Seoul High Court (second trial) and the Supreme Court (third trial). This is the first time a court decision is being made following the swarm bidding controversy. If Hoban Construction loses, other mid-sized construction companies are expected to face similar sanctions.
Court Ruling on Hoban Construction Imminent... Prosecution Indicts Daebang Construction CEO
Between 2017 and 2021, among 178 public land parcels supplied by the Korea Land and Housing Corporation (LH) through a lottery system, five construction companies?Hoban, Daebang, Joongheung, Woomi, and Jeil?won bids on 67 parcels (38%), revealing the severity of swarm bidding. Two years ago, the FTC imposed fines on Hoban Group for mobilizing affiliates to win public land bids and transferring the land to affiliates operated by former chairman Kim Sang-yeol's eldest and second sons to reap sales profits. The FTC also concluded that work was concentrated on Hoban Construction Housing, operated by eldest son Kim Dae-heon, to facilitate 'second-generation succession.' Hoban Construction argued that swarm bidding was a strategic choice based on market conditions and denied any intentional support for management succession. They claimed that the resale of public land was a legitimate transaction and that the FTC's fines were unjust.
Other construction companies are also facing sanctions related to swarm bidding. Recently, Daebang Construction CEO Koo Chan-woo was indicted without detention on charges of concentrating work orders to a company run by relatives through swarm bidding. Following the FTC's imposition of a 20.5 billion won fine, the company was referred to prosecution for violating the Fair Trade Act and brought to trial. This marks a shift from simple administrative measures to criminal penalties for swarm bidding. Woomi Construction and Joongheung Construction, which were also investigated by the FTC for swarm bidding, are expected to receive their sanction results soon. Including Jeil Construction, which has already been fined 9.7 billion won, the total fines imposed on the five construction companies involved in swarm bidding are expected to exceed 100 billion won.
As Market Slumps, 'One Company One Parcel' Rule Relaxed... Ministry of Land, Infrastructure and Transport Flip-Flops
Amid ongoing sanctions for swarm bidding, the government recently eased regulations to allow swarm bidding, drawing criticism from the industry. The government decided to effectively lift the 'one company one parcel' rule by relaxing public land supply standards. This is a stark contrast to the previous strict penalties for swarm bidding. The 'one company one parcel' system limits the number of parent companies and affiliates that can participate in bidding for public land to one. It was introduced as a three-year temporary measure in 2023 to eradicate swarm bidding. The government plans to discontinue its enforcement after this year.
The reason for lifting the regulation is the diminished effectiveness of the rule due to the real estate market slump and unsold public land. According to LH, 25 parcels of multi-family residential land that were sold last year had their contracts canceled, amounting to 2.7052 trillion won. Given this situation, a contradiction has emerged where past swarm bidding is being heavily sanctioned while policies are being relaxed. An industry insider said, "Relaxing regulations again because the market is bad undermines policy credibility," adding, "It is inconsistent to hold construction companies legally responsible while simultaneously changing the regulations."
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