Seoul Redevelopment Projects Worth 77 Trillion Won and AI-Driven Nuclear Orders...Will Cleaned-Up Builders See a Dual-Engine Rebound?[Real Estate AtoZ]

Completion of cost recognition for problematic projects
"Entering a phase of improving profit margins and ROE"
Housing supply policy as a 'pro-development signal'
Korean nuclear power emerging as core infrastructure

The construction industry has completed three years of cleaning up bad projects and is now preparing for a rebound. In the domestic market, large-scale redevelopment and reconstruction projects are opening up, centered on key areas of Seoul, while overseas, orders for nuclear power plants are increasing in response to a surge in power demand driven by artificial intelligence (AI). Analysts say that the combination of a stable domestic revenue base and global growth engines is accelerating structural improvement and a value re-rating of construction companies.

According to the construction industry on the 17th, Park Sera, a researcher at Shinyoung Securities, recently evaluated this year as the first year in which a structural rebound in the construction sector begins, in a report titled "Construction, It's Time to Buy." She diagnosed that a full-scale re-rating of the sector will begin as three pillars come together: completion of bad-debt clean-up, Seoul redevelopment projects, and global nuclear power plant orders.

Full stop after three years of bad-debt clean-up...Entering a profitability improvement phase

Kim Yoondeok, Minister of Land, Infrastructure and Transport, toured the south site of Seoul Medical Center in Samseong-dong, Gangnam-gu, Seoul, a housing project site related to the Jan. 29 measures, on the 4th of last month. The site, owned by the Korea Land & Housing Corporation, is expected to supply 518 housing units. Photo by Kang Jinhyung

From 2022 through last year, construction companies preemptively reflected costs at problematic sites and cleared out bad projects. This began in 2022 with HDC Hyundai Development Company's handling of the Gwangju Hwajeong accident, followed in 2023 by GS Engineering & Construction's recognition of re-construction costs for the Geomdan project in Incheon, and in 2024 by Hyundai Engineering & Construction's large-scale provisioning.

In particular, when Daewoo Engineering & Construction decided to recognize about 670 billion won in the fourth quarter of last year, including 550 billion won in costs related to unsold units and losses at overseas sites, the industry's overall "Big Bath" timeline effectively came to an end. Park analyzed that, as these cost recognitions are now largely complete, starting this year the focus will shift from simple top-line growth to more notable improvements in profit margins and a rise in return on equity (ROE).

Seoul redevelopment shifting to a seller's market...Government 'policy signal' through priming investment

In the domestic market, a "seller's market" is expected to open in which construction companies gain the upper hand, centered on key areas of Seoul. The total size of major urban redevelopment and reconstruction projects in Seoul this year is estimated at about 77 trillion won, of which approximately 51.5 trillion won is in the Seoul area alone. Supply will be concentrated in prime locations with guaranteed profitability, including the 5 trillion won Apgujeong District 3, Seongsu Districts 1, 2, and 4, and the Yeouido Sibeom Apartment complex.

As the market is being reorganized around top-tier large construction companies with strong financial resources and brand power, they can now pursue selective bidding focused on profitability instead of the cutthroat competition of the past. In fact, last year the order volume for redevelopment and reconstruction projects won by the top 10 construction companies reached about 48.7 trillion won, the largest ever, with Hyundai Engineering & Construction (about 10.5 trillion won) and Samsung C&T (about 9.2 trillion won) together accounting for 41% of the total.

The government's priming investment is also creating a favorable environment. The government has announced a five-year housing supply plan for 1.35 million units and is accelerating the development of large public land sites such as the Yongsan International Business District, the Gwacheon Racecourse site, and the Taereung Country Club site in Nowon.

Park said, "By directly engaging in development projects, the government is sending a policy signal that it intends to create a favorable environment for development in the private sector as well, including changes of land use," adding, "Development of large public land sites can even generate spillover effects on adjacent sites."

Institutional support measures are also accelerating projects, including the Seoul Metropolitan Government's expansion of floor area ratio incentives, the easing of requirements for designating redevelopment zones, and tax deferral benefits on in-kind contributions arising from the introduction of project REITs.

Global nuclear power demand driven by AI...114 billion dollars in orders secured for Korean nuclear power

Status of Korean construction companies' participation in overseas nuclear power plant projects. Shinyoung Securities Research Center

Overseas, nuclear power generation has emerged as a key industry due to a surge in power demand accompanying the expansion of the AI sector. Korean construction companies are being evaluated as an alternative that is free from the schedule delays and cost overruns experienced in the United States and France. China and Russia face restrictions in entering Western markets due to geopolitical risks.

Park said, "Korean construction companies are the only final executors capable of resolving the physical bottlenecks caused by an overwhelming surge in power demand," adding, "They have the capability to complete projects 'On Time, On Budget' and enjoy construction cost competitiveness at about half the level of the United States and France."

At present, a total order pipeline worth 114 billion dollars (about 165 trillion won) has been secured, including the Dukovany nuclear power plant in the Czech Republic, in which Daewoo Engineering & Construction is participating, the Kozloduy nuclear power plant in Bulgaria, for which Hyundai Engineering & Construction has signed a design contract, and the Palisades small modular reactor (SMR) project in the United States.

Park said, "Technology starts a revolution, but infrastructure completes it," adding, "In this era of great transition, where physical bottlenecks are becoming extremely severe, demand for construction will inevitably be stronger and more sustained than ever before." She went on to say, "Construction must be re-evaluated as a core infrastructure partner for making the AI revolution a reality."

However, there are variables that could cloud this optimistic outlook. Industry insiders point to factors such as profitability pressures stemming from rising raw material prices and labor costs, as well as potential disruptions to overseas projects due to geopolitical risks in the Middle East.