General contractors going out of business in first half at 12-year high

[Photo by Lee Seung-hwan]

The number of South Korean general contractors that closed their doors in the first half of this year hit a 12-year high, a report showed on Thursday.

According to the report released by the Construction & Economy Research Institute of Korea (CERIK), the total number of general contractor closures from January to June was 248, which is the highest number since the first half of 2011, which saw 310 closures.

Last year, the number of such closures reached a total of 362, averaging around 30 closures per month. However, in the first half of this year, there were 41 closures, or 10 more per month compared to last year.

Notably, in just the past month, closure notices increased by 35 compared to a year ago, reaching 53.

General contractors are relatively large in the industry because they subcontract to specialty contractors who in turn subcontract to other subcontractors.

Given the structure of the local construction industry, closures of general contractors inevitably have an impact on the operations of specialized construction companies.

CERIK attributed the increase in closures of general contractors to the sluggish real estate market and the resulting decrease in construction demand.

CERIK projected that it would be difficult for the number of such closures to decrease soon, as the skyrocketing cost of construction materials has led to a significant increase in construction costs amid the ongoing downturn in the real estate market. This makes it challenging to expect an expansion of new orders in the short term.

“Construction orders are typically secured several years in advance, so although construction sites may appear active at the moment, the decrease in new groundbreaking projects may pose difficulties in the future,” said Park Cheol-han, a CERIK researcher. “If construction companies perceive that they are incurring high costs just to maintain their licenses, they may choose not to remain in business.”