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 launched in June, and a severe liquidity crunch. As the president personally declared a zero-tolerance policy during 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 was marked by fears of bankruptcy, while overseas, the industry achieved record-breaking results in nuclear power plant exports. Here are the five major issues that defined the construction industry this year.

PF Crisis and Construction Industry Restructuring

The distorted business structures that relied heavily 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 debt, pushing even large firms with significant guarantees into liquidity crises. Selling prime land was no longer a choice but a necessity.

To address urgent liquidity needs, financial authorities extended the expiration dates for 10 out of 11 temporary regulatory relief measures for PF soft landings from the end of June to the end of December. These measures aimed to prevent abrupt capital withdrawals and buy time for project site restructuring. The targets were PF project sites, as well as the financial institutions and construction companies supporting them. The primary goal was to prevent market anxiety from spilling over into the real economy.

A wave of bankruptcies among mid-sized construction companies with weakened fundamentals became a reality. For example, Sindonga Construction entered rehabilitation proceedings at the beginning of the year but fortunately exited by October. Even companies with construction capabilities were driven into court receivership due to a single liquidity crunch, triggering a chain reaction of subcontractor insolvencies. By the third quarter, 2,301 general and specialized construction companies had closed down. It has become a foregone conclusion that more than 3,000 firms will exit the market for the second consecutive year.

Credit rating agencies successively downgraded the credit ratings and outlooks of major construction companies. Lower credit ratings immediately translated into higher corporate bond issuance rates. Both future orders and current construction completions declined simultaneously. In October, domestic construction orders totaled 9.8 trillion won, the lowest in five and a half years. During the same period, construction completions amounted to 10.0761 trillion won, marking an 18-month consecutive year-on-year decline since May of last year-the longest decrease on record.

From Hushed Deaths to 'Management Disasters'

Since the launch of the new administration, industrial safety has emerged as a "management risk" that can determine a company's survival. 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 recurring 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 buried in the past now made daily headlines, coming under nationwide scrutiny.

Construction companies, gripped by the fear that "an accident means bankruptcy," immediately began expanding safety personnel and strengthening inspection systems. POSCO E&C replaced its CEO, and Hyundai Engineering voluntarily suspended new order activities. Fatal accidents 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 insufficient to eliminate safety complacency overnight. In the second half of the year, more sites began prioritizing safety over speed, but fatal accidents at construction sites continued through the end of the year. Turning the safety-first policy into a tangible reduction in fatalities remains a task for 2026.

Seoul Apartment Price Growth Hits Record High, Widening Polarization

While the construction industry was mired in an unprecedented recession, apartment prices in Seoul recorded their highest-ever growth rate. 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 since statistics began in 2012, surpassing the previous record (8.0%) set during the Moon Jae-in administration.

This surge is attributed to a physical "supply shortage" anticipated due to a decline in construction starts two to three years ago, combined with the new administration's 6.27 measures (loan restrictions) and 10.15 measures (expansion of land transaction permit zones), which ironically led to a freeze in available listings. The fear of "buy now or never" drove genuine buyers into panic buying. As supply dwindled, demand concentrated in the Han River Belt, intensifying polarization.

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

Although the government aimed to control prices through regulations, it failed to curb the rise in Seoul housing prices, and the asset gap widened further, bringing the 2025 real estate market to a close as a "historic bull market."

Breathing Room Abroad, Czech Nuclear Power Plant 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 44.6957 billion dollars (about 66 trillion won), a 36% increase year-on-year. The strategy of reducing reliance on the Middle East and diversifying into Europe and Asia paid off.

The highlight was the Czech nuclear power plant. In June, "Team Korea," led by Korea Hydro & Nuclear Power, signed the main contract for the construction of two units at the Dukovany Nuclear Power Plant in the Czech Republic. The contract amount was 18.7 billion dollars (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.

With major projects such as parts of Saudi Arabia's NEOM City and Qatar's LNG plant scheduled for order by year-end, this year's overseas construction orders are expected to reach the initial target of 50 billion dollars. It was a year in which the "Team Korea" strategy, uniting the government and private sector, shone brightly on the global stage.

Project REITs Transform the Landscape of Development Finance

As the PF market tightened and regulations increased, real estate development companies gained new funding channels. With the implementation of regulations related to project REITs 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 relaxed establishment requirements and deferred taxation for in-kind contributions.

Project REITs are seen as an opportunity to fundamentally change the nature of domestic development projects, which were often compared to "sandcastles."

Previously, REITs could only be used after project completion, so during the development phase, companies had to establish project financing vehicles (PFVs) with minimal capital and rely on high-interest PF loans. PFVs, with 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 secure funding through REITs even before construction begins, dramatically improving financial structures.

Project REITs strictly limit borrowing to twice the amount of equity (up to ten times with shareholder approval). To obtain loans, companies must increase their equity accordingly, naturally enhancing financial stability.

However, one of the incentives for expanding investment-separate taxation of dividend income-was not included in the scope during the National Assembly Strategy and Finance Committee's tax subcommittee discussions. As both ruling and opposition parties agreed to revisit the issue under "expedited review," a separate bill is expected to be introduced once the Ministry of Economy and Finance completes its analysis of the impact on tax revenue.