Korean builders see low project viability amid supply cut

[Photo by Yonhap]

A South Korean construction company, ranking within the top 10 in the country, has decided to pursue contracts for only two projects this year after conducting a comprehensive pre-project viability assessment. This is a significant decline, with the company having greenlit 28 projects for bidding the previous year. In just one year, the number has dropped to less than one-tenth of the previous amount.

Typically, Korean builders internally assess whether they should bid for a project starting a year before obtaining permits for the construction project. The decline indicates that from this company’s perspective, it only identified two projects to bid on a year later. As of September 2023, the company has secured contracts for only two housing projects.

According to an analysis of the housing supply housing plans from the country’s top 10 construction companies by Maeil Business Newspaper on Saturday, supply has shrunk significantly even before the order and regulatory approval stages of construction.

Critics point out that the housing supply measures that the government will announce before Chuseok should be elaborated for each stage of the housing supply cycle, including land supply, construction, and sales.

The majority of the top 10 construction companies in Korea also confirmed that the number of projects that passed internal feasibility assessments dropped to less than half this year. Another Korean builder, which passed the feasibility assessment on 85 projects last year and the year before, has okayed only 11 projects in 2023 to date.

Another construction company said that it decided not to seek a single project as a result of its project performance evaluation. The company’s official said there is an absolute shortage of profitable projects compared to previous years, and clients are also adjusting the pace of project implementation.

The number of housing projects that have been awarded but yet to begin construction is more than 150 for the 10 largest builders. Another construction company said it has secured more than 40 projects but has not started construction.

“Construction costs have risen sharply since the contract was signed and delays in project financing loans at the time of construction due to the deterioration of business performance after winning the order are also a hindrance,” according to an official from this company.

Even if construction starts immediately, these projects are expected to take at least two to three until completion and residents start to move in.

As the housing supply crisis continues, the Ministry of Land, Infrastructure, and Transport plans to announce supply measures shortly. Construction companies are urging for a system that allows adjustments to project owners and construction costs, even after construction begins, to maek the construction process efficient.