Drastic Easing of Multi-Homeowner Regulations Needed to Revive Regional Real Estate [Construction Crisis Report]

Taxes as a Barrier
Regional Multi-Homeowners Pay More Than Single High-Value Homeowners
"To Revitalize Regional Areas, Start by Easing Buyer Restrictions"
"Beyond Short-Term Fixes, a Shift to a Sustainable Industry Is Needed"

"To resolve the crisis in the construction industry, there must be a revival in the regional real estate market. When people return to the pre-sale market, construction companies can secure performance. As money circulates within construction companies, the financial sector's burden of providing funding also disappears. With secured capital, construction firms seek new cash cows and invest heavily in new projects, injecting significant manpower. When everyone from subcontractors to day laborers secures work, consumption increases, thereby strengthening the national economy."

This is an example of a virtuous economic cycle as described by the construction industry. To trigger such effects, there must be demand for home purchases in regional areas. The main obstacle is the current tax system. Experts widely agree that the current tax system, which results in regional multi-homeowners with fewer assets facing a heavier tax burden than single-homeowners with expensive homes in Seoul, needs to be reformed.

"Recovery Impossible Without Drastic Measures"... Calls to Ease Multi-Homeowner Regulations

Um Geunyong, a research fellow at the Korea Institute of Construction Industry, said on the 29th, "To resolve the liquidity crisis in the construction industry, policy-based financial products should be expanded, and systems must be streamlined so that funds can be quickly injected into the field." Lee Moosong, head of new business at the Construction Association of Korea, also questioned, "Is it reasonable to maintain the current regulations in a phase of declining population and stagnant household numbers?" He pointed out, "Although some exemptions from capital gains and acquisition tax surcharges are applied to unsold homes in regional areas, the tax rates themselves remain excessively high." He added, "Those who own two or three homes have no incentive to purchase additional regional properties," and predicted, "If only the regulations on multi-homeowners are relaxed, the oversupply of unsold homes in regional areas will be quickly resolved."

There are also survey results indicating that strict regulations on multi-homeowners violate tax fairness. According to a report commissioned by the National Assembly Budget Office to a research team led by Professor Park Hoon of the University of Seoul, taxation based on the number of homes has resulted in regional multi-homeowners with fewer assets bearing a heavier tax burden than single-homeowners in Seoul who own high-value properties. The report stated, "The current system undermines tax fairness and encourages tax avoidance," and recommended, "Tax rates should be restructured based on capital gains or total assets, not the number of homes owned."

Specific proposals for tax relief have also been made. For unsold homes in regional areas, a 50% reduction in acquisition tax and a full exemption from capital gains tax for five years have been suggested. Choi Sujin, a lawmaker from the People Power Party, proposed an amendment to the Local Tax Act reflecting these measures in December last year.

Some argue that, in addition to tax reform, it is necessary to ease loan regulations. Due to the June 27 loan restrictions on household lending, the channels for injecting funds have been blocked, making it difficult to revive demand. An executive at a development company said, "Even if tax benefits are provided, their practical effect is limited because funding remains blocked," and added, "Both tax relief and the easing of loan regulations must occur together for the market to respond."

Lowering the base interest rate to invigorate the market is also considered a possible solution. Kim Taejun, head of the New Growth Strategy Research Division at the Korea Institute of Construction Policy, said, "To restore cash flow, a reduction in the base interest rate is necessary," and explained, "In the current high-interest environment, the profitability of private project financing (PF) projects does not make sense, making it difficult to even start construction." Kim added, "A minimum return of 5 to 10% is required for PF projects to be viable, but with current funding rates, this is impossible."

"Housing Alone Is Not Enough... Need to Expand Private Demand by Attracting Industrial Facilities"

In the mid- to long-term, there are recommendations to pursue strategies for attracting industrial facilities in addition to supplying housing. The argument is that jobs must be created in regional areas to supply housing and revitalize the local economy.

Jeon Youngjun, head of the Future Industry Policy Research Division at the Korea Institute of Construction Industry, analyzed, "In the past, large-scale industrial facilities such as Samsung Electronics' semiconductor plant in Pyeongtaek were built domestically, but recently, due to onshoring policies in the United States and the European Union (EU), more facilities are being built overseas instead of in Korea." He explained, "As a result, domestic private construction demand is gradually shrinking." He stated, "Rather than focusing solely on expanding housing supply, comprehensive incentives such as tax relief, land provision, and streamlined licensing procedures should be prepared to attract industrial facilities."

There is also criticism that, although private construction accounts for about 70% of the total construction market, government policies remain focused on public works. In fact, since March last year, most of the government's construction industry revitalization measures have focused on the public sector, with insufficient practical support for the private sector. Jeon said, "In addition to short-term measures such as resolving unsold homes in regional areas or responding to PF insolvency, we must consider ways to revive private sector vitality."

Improving contract systems to distribute construction cost risks is also cited as a major task. While public works have established systems for adjusting contract prices in response to price fluctuations, the private sector still generally uses "fixed price exclusion clauses." Jeon emphasized, "We must establish price-indexed standards or standard contract guidelines to change the structure where construction companies bear the costs unilaterally."

A construction site in downtown Seoul. Photo by Yonhap News

"More Construction Companies Than Convenience Stores... Structural Industry Transformation Needed"

The government believes the construction industry crisis cannot be viewed solely as a liquidity problem. An official at the Ministry of Land, Infrastructure and Transport said, "Now is the time to build social consensus that the construction industry itself must change," and added, "It is time to shift from a growth-oriented industry to a sustainable one." The official continued, "Although construction still accounts for a significant share of the overall economy, it is inevitable that this share will gradually decrease as in advanced countries," and explained, "If existing businesses and systems were designed for the growth phase, now new approaches are needed to match the current market and public expectations."

The Ministry of Land, Infrastructure and Transport maintains that there are practical limits to directly supporting individual companies. The official said, "From the government's perspective, rather than directly saving each construction company, the focus is on minimizing secondary damage, such as protecting subcontractors and homebuyers, in the event of court receivership."

There are also opinions that the priority should be to distinguish between viable and non-viable construction companies. Lee Eunhyeong, a research fellow at the Korea Institute of Construction Policy, said, "Now is the time to distinguish between companies that can survive and those that will naturally exit the market," and pointed out, "The number of construction firms itself is excessively high."

Lee noted, "As of 2023, the combined number of general and specialized construction companies exceeds 80,000, which is more than the number of convenience stores nationwide (55,580)," and explained, "Crises have recurred depending on economic conditions, and each time, the industry has been reorganized around strong companies. This time will be no exception." He added, "Rather than vague pessimism, policies that encourage a shift to high value-added industries are needed."

There are also calls to approach the construction industry not with a negative perception, but from the perspective of overall economic balance and resilience. Kim Myungsoo, a professor at the Catholic University of Korea, said, "The construction industry has the greatest employment-inducing effect and serves as a leading indicator of the economy, significantly impacting the macroeconomy," and emphasized, "We must not underestimate the role of the construction industry during an economic recovery phase."

'Construction Crisis Report' Series Order

<1-1> Construction Sites Stopped, Day Laborers' Lives Collapsing
<1-2> "Three or Four More Bankruptcies"... Mid-sized Builders Targeted for Restructuring
<2-1> PF: From Lifeline to Trap
<2-2> Easing Multi-Homeowner Regulations, the Key to Reviving Regional Real Estate
<3-1> "Every Day Is Nerve-Wracking" Shaken Subcontractors and Downstream Industries
<3-2> Even Major Companies Cannot Avoid Wage Arrears
<3-3> LH and Local Governments Also Facing Wage Arrears
<3-4> Even the President Stepped In... Urgent Need for Vertical Structure Reform
<3-5> This Company Survived Without Illegal Re-Subcontracting
<3-6> United at the Collapsing Site
<4-1> Foreign Construction Workers Encroaching on Domestic Jobs
<4-2> From 'Regulating Foreigners' to 'Protecting Domestic Workers'
<4-3> The Root Cause of Deteriorating Profitability: Frequent Rework