DL E&C and HDC Hyundai Development Company Have Dropped Significantly... Large Construction Firms Overly Declined

[Asia Economy Reporter Lee Seon-ae] Experts have analyzed that the stock price decline of major construction companies such as DL E&C and HDC Hyundai Development Company is excessive.

According to Korea Investment & Securities on the 21st, the KOSPI construction industry index fell by 11% from the end of July to the 19th. Among 17 industries, it recorded the second largest decline after iron and non-ferrous metals.

Kang Kyung-tae, a researcher at Korea Investment & Securities, pointed out, "This is an additional 7.7 percentage points decline compared to the KOSPI index, and some large companies that make up the construction industry index, such as GS Construction, DL E&C, and HDC Hyundai Development Company, have mostly given up their annual gains this year," adding, "Even considering the recent weak market conditions, the stock price decline is excessive."

He continued, "The major investment points that led to the stock price strength in the first half, such as the domestic housing supply entering an upward phase and the recovery of Middle East orders due to rising oil prices, are still valid," emphasizing that he examined two concerns currently raised in the market, focusing on the domestic housing construction sector, which is leading the growth and profitability improvement of large construction companies.

First, he expressed the view that the transition to post-sale does not affect the construction company's construction sales. Researcher Kang explained, "Recently, discussions on post-sale supply have been held mainly in some redevelopment areas," and added, "Considering the risks borne by the association, it is judged that pre-sale is more likely, and even if it switches to post-sale, there is no impact on the construction company's construction sales."

The reason for considering the transition to post-sale in redevelopment areas subject to the price ceiling system is the expectation that the general sale price can be set higher than at the pre-sale stage due to rising land costs, according to Researcher Kang. Since the supply timing of post-sale complexes is when more than 60% of the frame work is completed, the construction company's cost input is essential, and construction sales occur similarly to general pre-sale.

Post-sale projects cannot use the construction contract method of paying construction costs with the buyers' sale payments. Therefore, the association secures more than 60% of the total construction cost through project financing (PF) and proceeds with construction under a progress payment contract. It is necessary to note that the risks such as additional financial costs compared to pre-sale and price uncertainty at the supply timing are all borne by the implementing entity.

He also predicted that the resolution of unsold units before completion, another concern, is possible. Recently, unsold risks emerged due to the failure to meet the first priority subscription rate in some complexes supplied in Daegu. Researcher Kang explained, "This is a case of unsold units occurring before the apartment is completed, but the unsold units before completion in Daegu are likely to be resolved," adding, "Because the process of selecting buyers through second priority subscriptions and lottery methods remains."

He added, "As housing supply increases, concerns about unsold units also rise," but "it is necessary to consider current market conditions such as the private land price ceiling system and shortage of move-in volume, and it is inappropriate to interpret Daegu's case as leading to unsold units after completion, which are classified as malignant."

This content was produced with the assistance of AI translation services.