Government Responds to Construction Industry's Call for "Pre-Regulation Easing" with "Monitoring Real-Time Situation"

"Exit Strategy Timing Uncertain, Scenario Analysis Crucial"
Government "Monitoring to Prevent Excessive Panic and Market Freeze"

On the 2nd, panelists are discussing at the '2023 Construction and Real Estate Market Outlook Seminar' held at the Construction Hall in Nonhyeon-dong, Gangnam-gu, Seoul. / Photo by Kyungjo Noh felizkj@

[Asia Economy Reporter Noh Kyung-jo] Construction industry insiders have urged the government to ease regulations in advance. With the high interest rate trend expected to continue until next year and no clear timeline for normalization (exit strategy), they emphasized the need for a prompt response, even if proactive measures are difficult. In response, the government stressed that it is monitoring the situation in real time.

Kim Yeol-mae, a research fellow at NH Investment & Securities, participated as a panelist at the '2023 Construction and Real Estate Market Outlook Seminar' hosted by the Korea Construction Industry Research Institute on the 2nd, stating, "Winter has come all at once to the market. It feels like an ice age," and added, "Objective scenario analysis and countermeasures from various perspectives are necessary."

Researcher Kim said, "At the beginning of the year, no institution predicted the Bank of Korea's base rate hike to 3.0%," and continued, "The U.S. is expected to raise rates up to 5.0%, and this is gauged by changes in bond prices. We are experiencing a market where long-term bond prices fluctuate drastically within a day." He added, "Volatility is so high that we cannot be sure if next year will be the peak," and emphasized, "We must not respond half-heartedly."

Currently, the U.S. base interest rate stands at 3.25%, and it is widely expected that another giant step (a 0.75 percentage point hike) will be taken in the early hours of the 3rd, Korean time. Therefore, there is significant attention on the Bank of Korea's Monetary Policy Committee meeting scheduled this month to decide the base interest rate.

Regarding government responses, voices calling for an expansion of the Social Overhead Capital (SOC) budget have also emerged. While the past three years focused on overcoming the COVID-19 pandemic, the current challenge is how to prevent economic stagnation, and expanding SOC projects is seen as one possible measure.

Oh Beom-gyun, head of policy support at Hyundai Engineering & Construction, said, "Since everyone expects the private sector to face difficulties next year, the public sector must provide support," adding, "The government should expand the SOC budget and apply appropriate construction costs to create an environment where companies can work comfortably."

Earlier, the government finalized next year's SOC budget at 25.1 trillion won, a 10% decrease from this year's 28 trillion won. Oh said, "With increasing uncertainties in the private construction sector, such as funding shortages, if SOC also faces difficulties, small and medium construction companies relying on fiscal projects may suffer significant damage," emphasizing, "An expansionary stance is necessary for the survival of the construction industry and economic stimulus."

The Korea Development Institute (KDI) viewed the timing of the exit strategy as a turning point that will determine the direction of construction investment and housing sales and rental prices. KDI research fellow Oh Ji-yoon said, "The current rate hikes aim to stabilize inflation, but the key is when signals will appear indicating a change in the trend," and cautioned, "Since sales and rental prices have been moving in tandem for over two years, careful attention is required."

The government emphasized that it is closely monitoring the market. Park Jeong-ran, director of construction policy at the Ministry of Land, Infrastructure and Transport, explained, "As seen in the Legoland incident, excessive panic causes market stagnation," and added, "Statistics are released later than the actual occurrence, so rather than relying on them, we focus on 'monitoring' to grasp real-time situations."

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