[The Editors' Verdict] Even If Civil Engineering Is Abandoned, Construction Must Be Saved

Recently, the construction industry has been enduring conditions even more difficult than those experienced during the Asian Financial Crisis. In the first quarter of this year, the value of completed construction work stood at approximately 34 trillion won, a 20.1% decrease compared to the same period last year. This means that, each month this year, the payments due after completing construction projects have dropped by 20%. Since this statistic began being compiled in 1997, this represents the largest decline since the Asian Financial Crisis.

Even during the global financial crisis, the situation was not this severe. The value of construction orders, a leading indicator of the construction market, stood at 171.9 trillion won in 2023, an 18.9% decrease from the previous year. This is a sharper decline than the 15.5% drop in 2008. Although there was an increase of about 6.6 trillion won last year, it still fell far short of the 212 trillion won recorded in 2022.

Amidst the real estate market freeze, it is as if a state of emergency has been declared, and there is still no visibility going forward. With political instability persisting, the private sector has given up on building homes. As public attention remains focused on the political situation, companies cannot risk survival by pushing ahead with multi-trillion-won projects that could end up unsold. In March of this year, the value of completed private sector construction projects fell by 17.3% year-on-year to 14.3 trillion won. Housing completions declined by 18.4% compared to the same month last year, marking an 11-month consecutive decrease.

Small and medium-sized construction companies are being forced out onto the streets. In the first quarter of this year, there were 160 public notices of construction company closures (including partial closures and business conversions, according to KISCON), the highest number in 14 years since 2011, when there were 164 cases. Companies such as Daeheung Construction (ranked 96th), Shindongah Construction (58th), Sambu Construction (71st), Angang Construction (116th), and Daewoo Shipbuilding & Marine Engineering Construction (83rd) have all entered rehabilitation procedures. Even the top five construction companies?Samsung C&T Construction Division, Hyundai Engineering & Construction, Daewoo Engineering & Construction, DL E&C, and GS E&C?saw their first-quarter sales drop sharply compared to the same period last year.

External conditions offer little hope. The construction industry is facing an existential crisis due to factors such as the entrenchment of a low-growth structure, a slowdown in the pace of interest rate cuts caused by the Korea-US interest rate reversal, rising construction costs due to US tariff hikes, and instability in global supply chains.

The crisis in the construction industry is also negatively impacting the national economy. In the first quarter of this year, the real GDP growth rate (preliminary, quarter-on-quarter) recorded negative growth of -0.2% for the first time in three quarters since the second quarter of last year. Construction investment contributed -0.4 percentage points to this contraction. Consumption, which was also identified as a cause of this negative growth, contributed 0.0 percentage points (flat) to the growth rate from both the private and government sectors.

The construction industry had pinned its hopes on this presidential election. However, the candidates took a different approach. Unlike the previous election, they did not propose building unviable infrastructure projects or promise to construct millions of housing units that could not be completed within their terms. Instead, their pledges were limited to revitalizing housing supply, easing reconstruction regulations, and expanding the Greater Seoul Metropolitan Express Railway (GTX). No construction-related policies were discussed during the presidential debates. Regardless of the reasons, it is a sign of progress that the candidates avoided making the election about construction and civil engineering.

However, things must change after the election. The focus must return to the essence of the construction industry. A practical roadmap and clear, concrete messages are needed to resolve the crisis. Questions must be answered, such as how many new homes will be supplied and in what manner to stabilize the market; how to resolve the backlog of unsold homes in regional areas to give construction companies breathing room; and how to efficiently execute the social overhead capital (SOC) budget to revitalize the market. Reviving the construction industry is essential for the recovery of the overall economy.