Construction Stocks' Appeal Continues to Build Layer by Layer

New Public Housing Sites Announced
Presidential Candidates' Pledge to Expand Housing Supply

KRX Construction Index Rises 11%
"Positive Momentum to Continue Until October"

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Following the government's announcement of new public housing sites, major presidential candidates have pledged to expand housing supply, leading construction stocks to show a unified upward trend.

According to the Korea Exchange on the 2nd, the KRX Construction Index rose 11.11% from the 24th of last month to the 1st of this month, marking the largest increase among sector indices. By stock, KCC Glass (14.4%), Kolon Global (12.2%), Samsung Engineering (10.5%), Dongkuk S&C (9.9%), GS Construction (9.7%), SGC E-Tech Construction (9.3%), Kumho Construction (8.2%), and Daewoo Construction (7.17%) showed significant gains. Previously, the KRX Construction Index had plunged 11.78% from July to mid-last month due to concerns over delayed sales by large construction companies, underperforming the KOSPI (-7%). The rise in real estate prices caused pre-sale prices to increase over time, prompting developers and associations to delay sales, which acted as a negative factor. However, the sales delays were only a short-term issue, and the government's supply expansion policy positively influenced stock prices, resulting in a recent sharp upward trend.

The expectation for supply expansion was boosted by the government's announcement of new public housing sites. At the end of last month, the Ministry of Land, Infrastructure and Transport, as part of the 2·4 supply plan, selected 10 additional new public housing sites to supply a total of 140,000 households, increasing expectations for expanded housing supply. This announcement was a positive factor not only for large companies that secured record-breaking pre-sale volumes since last year but also for small and medium-sized construction companies. Seungjun Kim, a researcher at Hyundai Motor Securities, analyzed, "An increase in housing sites is naturally a positive factor for construction companies," adding, "The 3rd new towns are more than 50% public, which is a great benefit for small and medium-sized housing stocks."

In addition, the fact that major ruling and opposition candidates have commonly pledged to expand housing supply ahead of the presidential election is increasing investment attractiveness. Yoon Seok-yeol, a leading opposition presidential candidate, proposed supplying more than 2.5 million houses during his term and raising the loan-to-value ratio (LTV) to 80% for newlyweds and young people. Lee Jae-myung also announced plans to supply a total of 2.5 million households, including 1 million basic housing units.

Minjae Lee, a researcher at NH Investment & Securities, said, "Opposition candidates are expected to include tax regulation relaxations favorable to large construction companies, such as reconstruction and redevelopment, unlike the current government policy, which will act as a positive momentum for the construction sector," adding, "This momentum will continue until October, when the final candidate is decided after the ruling and opposition primaries conclude."

Large construction stocks also anticipate additional momentum as the overseas plant market recovers due to rising oil prices. Since the fourth quarter of last year, rising oil prices have improved the fiscal conditions of major oil-producing countries, leading to an increase in trillion-won scale project bids. In the second half of the year, Hyundai Construction is awaiting orders for the Egypt nuclear power project ($1.5 billion) and the Saudi gas plant project ($3.5 billion), while Samsung Engineering has large project bids scheduled, such as UAE’s ‘Hail & Gasha’ ($6 billion).

Younghwan Jo, a researcher at Kiwoom Securities, analyzed, "Large companies will focus on securing profitability by selecting projects rather than indiscriminate bidding as in the past," adding, "Although the business environment is favorable both domestically and internationally, considering that construction companies increased the proportion of domestic housing projects after large-scale losses in overseas plants, they will expand their scale centered on housing projects for the time being."

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