Overseas "Jackpot," Domestic "Bankruptcy Fears"... In Construction, "Survival Is a Miracle" [Real Estate AtoZ]

2025 Construction and Real Estate Year in Review

This year, the construction industry found itself trapped between two major challenges: the strong drive to eradicate industrial accidents initiated by the Lee Jaemyung administration, which took office in June, and a severe liquidity crunch. While the president personally declared a zero-tolerance policy at cabinet meetings, companies spent the year scrambling to secure cash amid fears of court receivership and credit rating downgrades. In 2025, the domestic construction sector faced the stark contrast of bankruptcy fears at home and record-breaking achievements in overseas nuclear power projects. Here are the five major issues that defined the construction industry this year.

PF Crisis and Construction Industry Restructuring

The distorted business structure that relied on the real estate boom collapsed helplessly in the face of a downturn. The risks associated with real estate project financing (PF) persisted into the new year without resolution. The failure to convert bridge loans into main PF loans led directly to construction companies taking on additional debt, pushing even large firms with significant guarantees into liquidity crises. Selling prime land became a necessity, not a choice.

To address the urgent situation, financial authorities extended the expiration dates for 10 out of 11 temporary regulatory easing measures for PF stabilization from the end of June to the end of December. This was intended to prevent rapid capital withdrawals and give companies more time to reorganize project sites. The measures targeted PF project sites, the financial sector supporting them, and construction companies. The primary goal was to prevent market anxiety from spreading to actual construction sites.

A wave of bankruptcies among mid-sized construction firms with depleted fundamentals became a reality. The case of Sindonga Construction, which entered rehabilitation proceedings early in the year and concluded them in October, was considered relatively fortunate. Even companies with construction capabilities were driven into court receivership due to a single liquidity crunch, triggering a chain reaction of insolvencies among subcontractors. By the end of the third quarter, 2,301 general and specialized construction companies had closed down. It is now virtually certain that more than 3,000 companies will exit the market for the second consecutive year.

Credit rating agencies repeatedly downgraded the credit ratings and outlooks of major construction firms. Lower credit ratings immediately led to higher corporate bond issuance rates. Both future orders and current progress payments declined simultaneously. In October, domestic construction orders amounted to 980 billion won, the lowest in five and a half years. During the same period, construction progress payments totaled 1.00761 trillion won, marking an 18-month consecutive year-on-year decline since May of the previous year-the longest decline on record.

From Hushed Deaths to 'Management Disasters'

Since the launch of the new administration, industrial safety has emerged as a "management risk" that determines the survival of companies. Fatal accidents at construction sites, previously hidden behind statistics and treated as routine, came to the forefront after President Lee Jaemyung declared a zero-tolerance policy.

In a cabinet meeting in July, President Lee defined repeated industrial accidents as "murder by willful negligence" and took a hardline stance by instructing authorities to consider revoking construction licenses for companies with repeated fatal accidents. Furthermore, all fatal industrial accidents were elevated to a direct reporting system to the presidential office. Accidents that would have been briefly reported or overlooked in the past dominated headlines daily, placing the entire industry under public scrutiny.

Construction companies, gripped by the fear that "an accident means bankruptcy," immediately began to increase safety personnel and strengthen inspection systems. POSCO E&C replaced its CEO, and Hyundai Engineering voluntarily suspended new order activities. Fatal accidents at construction sites have now become "management disasters," directly leading to CEO replacements, order restrictions, and reputational damage.

However, despite the government’s intense pressure raising on-site vigilance, it was not enough to eradicate the widespread disregard for safety overnight. In the second half of the year, more sites prioritized safety over speed, but fatal accidents at construction sites continued through the end of the year. Effectively translating the safety-first approach into a tangible reduction in fatalities remains a challenge for 2026.

Seoul Apartment Price Growth Reaches Record High, Polarization Deepens

While the construction industry suffered an unprecedented slump, apartment prices in Seoul recorded their highest growth rate ever. According to the Korea Real Estate Board, as of the second week of December, the cumulative annual increase in Seoul apartment sale prices was 8.1%. This is the highest figure since statistics began in 2012, surpassing the previous record of 8.0% set during the Moon Jae-in administration.

This surge is attributed to a physical "supply shortage" anticipated due to a decline in new starts two to three years ago, combined with the new administration’s June 27 measures (loan restrictions) and October 15 measures (expansion of land transaction permit zones), which instead led to a "lock-in" of available properties. The fear of "now or never" pushed genuine buyers into panic buying. Amid the supply shortage, demand concentrated in the Han River Belt, further deepening polarization.

As Seoul home prices soared, the gap between the capital region and non-capital regions widened. According to the Korea Research Institute for Construction Policy, as of September this year, apartment prices in the capital region rose by 1.9% year-on-year, while those in provincial areas fell by 1.7%.

Although the government tried to curb prices through regulations, it failed to contain the upward trend in Seoul, and the asset gap has widened even further. Thus, the 2025 real estate market is closing as a "record-breaking bull market."

Breathing Room Overseas, Czech Nuclear Power Plant Deal Peaks at 26 Trillion Won

Dukovany Nuclear Power Plant, Korea Hydro & Nuclear Power

While the domestic construction market hit rock bottom, the situation overseas was markedly different. From the beginning of the year through last month, cumulative overseas construction orders reached $44.60957 billion (about 66 trillion won), a 36% increase year-on-year. A strategy to diversify markets away from the Middle East toward Europe and Asia proved successful.

The highlight was the Czech nuclear power plant deal. In June, "Team Korea," led by Korea Hydro & Nuclear Power, signed the main contract to build two units at the Dukovany Nuclear Power Plant in the Czech Republic. The contract value was $18.7 billion (26 trillion won), the second-largest overseas construction order in history. Despite interference from France, which even filed for an injunction, "Team Korea" ultimately prevailed.

By the end of the year, major projects such as parts of Saudi Arabia’s NEOM City and Qatar’s LNG plant are scheduled to be awarded, making it highly likely that this year’s overseas construction orders will reach the original target of $50 billion. The "Team Korea" strategy, uniting the government and private sector, shone brightly in overseas markets this year.

Project REITs Transform the Landscape of Development Finance

As the PF market tightened and regulations increased, real estate development companies gained a new funding channel. With the implementation of project REITs-related legislation on November 28, it became possible to attract capital through REITs from the early stages of development. The new framework also includes benefits such as eased establishment requirements and deferred taxation on in-kind contributions.

Project REITs are seen as an opportunity to transform the "sandcastle-like" nature of domestic development projects.

Previously, REITs could only be used after project completion, so developers had to rely on project finance vehicles (PFVs) with minimal capital and high-interest PF loans during the development phase. PFVs, which have no borrowing limits, could undertake high-risk projects with just 2-3% equity, making them vulnerable to insolvency. However, with the new system, it is now possible to raise funds through REITs even before construction begins, fundamentally improving financial structures.

Project REITs are strictly limited to borrowing up to twice their equity (or up to ten times with a shareholder resolution). To obtain loans, companies must inject more capital, thereby naturally ensuring financial stability.

However, one incentive to encourage investment-separate taxation of dividend income-was not included in the latest review by the National Assembly’s Strategy and Finance Committee’s tax subcommittee. As both ruling and opposition parties agreed to reconsider the matter under "expedited review," a separate bill is expected to be proposed once the Ministry of Economy and Finance completes its analysis of the impact on tax revenues.