The Bank of Korea Says "Construction Market Will Continue a Moderate Recovery"

Workers are working at a construction site in Goyang-si, Gyeonggi-do. [Image source=Yonhap News]

The Bank of Korea expects the construction industry to show signs of improvement as supply constraint factors gradually ease, but anticipates a moderate recovery due to rising construction material prices and shortages of foreign and skilled labor.

In its report titled "Assessment and Implications of the Recent Construction Industry Situation" published in the 'BOK Issue Note,' the Bank of Korea explained, "The current construction industry is in the early phase of an expansion," and "Considering the high persistence of the construction industry, the recovery trend is likely to continue for a considerable period."

According to the Bank of Korea, indicators that have causal and leading relationships with the construction industry have all entered an expansion phase about a year ago, and government housing supply policies, which significantly impact the construction industry's cycle, are also on an expansion trend.

Looking at past real estate price increase periods, the construction industry entered an expansion phase during supply expansion policies such as new town developments.

However, the Bank of Korea explained that the sharp rise in construction material prices due to global supply chain disruptions caused by the Ukraine situation is a constraining factor.

The Bank of Korea pointed out, "Profitability of construction projects has deteriorated significantly, causing disruptions in construction and delays in new sales," and "Considering that a significant portion of ongoing projects were contracted and started during 2019?2021 when cost burdens were low, the recent surge in construction material prices will act as a factor greatly worsening the profitability of construction projects."

Additionally, it explained that the shortage of labor has intensified due to a sharp decline in foreign workers caused by entry restrictions amid the COVID-19 pandemic, and changes in the construction site environment such as reduced working hours and strengthened safety management are also negative factors for the construction industry.

The Bank of Korea stated, "For a steady recovery in construction investment, it is necessary to establish a rational cost-sharing system among construction stakeholders when construction costs and benefits fluctuate, and efforts such as diversifying import sources of construction raw materials and enhancing the stability of domestic logistics networks are required."

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