"You'll Starve to Death in Gwangju"... Following Hoban and Woomee, Jungheung Construction Also Moves from Gwangju to Seoul [Real Estate AtoZ]

Key Functions to Be Relocated to Seoul
Eulji Twin Tower, Home to Daewoo Engineering & Construction, Considered as New Office
Perfect Storm: Market Contraction, Population Decline, and Surging Unsold Units
Following Hoban and Woomee, Even Jungheun

Jungheung Construction, which has grown based in Gwangju Metropolitan City, has entered the process of moving away from its Gwangju roots. Jungheung, which was effectively the last of the major construction companies rooted in the Honam region to remain, has now also begun to withdraw from the provinces. With the collapse of housing demand, the accumulation of unsold units, and excessive public contribution requirements all overlapping, there is a growing consensus that the era of large construction companies based in Gwangju has come to an end.

Jungheung Construction Group Headquarters. The Asia Business Daily DB.

According to the construction industry on December 20, Jungheung Construction has recently decided internally to relocate its core functions-such as order acquisition, development, and planning-to Seoul. While the headquarters will remain nominally in Gwangju, the actual decision-making and business operations will shift to the Seoul metropolitan area. The Eulji Twin Tower, where Daewoo Engineering & Construction, an affiliate of Jungheung Construction Group, is located, is being considered as the Seoul office. A Jungheung Construction representative stated, "It is true that there are plans to move some functions to Seoul next year," but added, "Nothing has been finalized in detail yet."

This decision is believed to be driven by the sharp contraction of the Gwangju housing market. The population of Gwangju fell to around 1.39 million this year, dropping below the 1.4 million mark for the first time in 21 years. The rate of population decline is the highest in the country, while the rate of household increase is among the lowest. As the demand base collapsed, the number of unsold units surged. In 2021, there were only 27 unsold units in Gwangju, but as of October this year, the number had soared to 1,431.

The postponement of the groundbreaking and sales launch of the "Champions City" project-a project financing (PF) initiative worth over 1 trillion won that had generated high expectations-from the second half of this year to next year is also closely related to these market conditions. Champions City is a large-scale project to build 4,315 apartment units, commercial facilities, a hotel, and a park on the former sites of Jeonnam Textile and Ilshin Textile. Both POSCO E&C and Daewoo Engineering & Construction, which had formed a consortium and secured the construction rights, have withdrawn from the project, leaving the construction company position vacant for now.

Some observers also point to Gwangju City's excessive public contribution (donation in kind) requirements as a reason for Jungheung's move away from Gwangju. The total amount of donation in kind required by Gwangju City for large-scale development projects has accumulated to over 1 trillion won, the highest in the country. For example, in the case of the Champions City project, the planned donation in kind alone is about 590 billion won, which is almost equivalent to the land purchase price of 685 billion won paid by the developer. The expansion project for Shinsegae Department Store has also been delayed due to disagreements over the scale of the donation in kind, which amounts to several tens of billions of won, as a condition for road modification.

Jungheung Construction's Geomdan Hosu Park Station Jungheung S-Class, launched this year. Jungheung Construction.

Before Jungheung Construction, many large construction companies that had grown based in the Honam region had already relocated their headquarters or moved their core functions to the Seoul metropolitan area. Among the "five major Honam-based construction companies"-including Hoban Construction, Hoban Group, Woomee Construction, and Kumho Construction-three have their headquarters in Seoul. In the case of Cheil Construction, its headquarters remains in Gwangju, but it operates a Seoul branch in Dongjak District, where it handles business development, sales, marketing, metropolitan area project management, and finance-related work.

Now that even Jungheung is shifting its center of gravity to Seoul, there is a growing likelihood that its Gwangju headquarters will be reduced to little more than a "paper address" in the future. Of course, for mid-sized construction companies-which lack the financial resources and brand power of their larger counterparts-moving to Seoul does not guarantee a significant improvement in their situation, but it is still considered better than remaining in the provinces. A construction industry official commented, "There is a saying that in Seoul you might be crushed to death, but in Gwangju you will starve to death," adding, "They are expected to use small-scale redevelopment projects and public-private partnership housing projects in the metropolitan area as a springboard to improve their performance."