Concerns Over PF Insolvency... Infrastructure Shaken Following the Housing Market

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As the contraction of the construction industry due to the real estate project financing (PF) insolvency controversy becomes visible, not only the housing market but also the social overhead capital (SOC) sector is rapidly freezing up.

According to the Ministry of Land, Infrastructure and Transport on the 2nd, the metropolitan express railroad (GTX)-B line project in the Seoul metropolitan area failed in the private sector section following the fiscal section. The Ministry received project applications from July 4 to November 1, but the bid failed due to a sole bid from the Daewoo consortium. According to related laws, if there is no competition, re-submission is accepted.

The GTX involves highly challenging deep tunnel construction, and in some sections, the project’s feasibility is even unclear. Moreover, with concerns over PF insolvency causing a sharp decline in the construction industry, construction companies are more cautious than ever. The construction sentiment is experiencing its harshest winter in 10 years. The Construction Business Survey Index (CBSI) for October, released by the Korea Construction Industry Research Institute, recorded 55.4, down 5.7 points from the previous month. This is the lowest figure in 9 years and 8 months since February 2013, when it recorded 54.3. A CBSI below the baseline of 100 means that more companies view the current construction market pessimistically than optimistically. Researcher Park Cheol-han said, "It appears that the construction sentiment has worsened due to concerns over real estate PF insolvency," adding, "Especially, the corporate sentiment of mid-sized companies is deteriorating significantly."

The problem is that the social and economic repercussions of shrinking infrastructure investment and projects are considerable. Expansion of infrastructure facilities such as railroads, roads, ports, airports, and industrial complexes promotes regional economic revitalization through employment and has a significant income distribution effect. However, with rising interest rates and concerns over economic contraction, the private sector’s investment capacity has declined, and the government has drastically reduced next year’s budget plan. With housing construction starts being postponed one after another, if the infrastructure sector is also held back, a hard landing of not only the construction industry but the entire industry is inevitable. This is why there are calls for active preparation against the contraction of construction infrastructure investment. Eom Geun-yong, a senior researcher at the Construction Industry Research Institute, said, "Infrastructure investment has proven economic growth effects and income distribution effects in many studies," adding, "It is necessary to maintain an appropriate level of infrastructure investment."

Meanwhile, the establishment of GTX-B is one of President Yoon Seok-yeol’s transportation pledges. The project aims to create a new line crossing the metropolitan area east to west from Incheon Incheon National University Station to Gyeonggi Namyangju Maseok, allowing transfers at major stations such as Seoul Station and Cheongnyangni Station. Of the total 82.7 km line, 62.8 km is a private sector section, and the remaining Seoul Yongsan to Sangbong section is a fiscal project section. Previously, the bidding for selecting a fiscal project operator failed three consecutive times due to insufficient participating companies. The Ministry of Land, Infrastructure and Transport stated, "After conducting a 45-day re-notification, we plan to select a preferred negotiation partner in January next year," adding, "We will ensure that construction starts smoothly in 2024."

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