Construction Stocks Losing Even Regulatory Easing Hopes, Overseas Orders as an Escape Route

Construction Industry Index Falls 3.92% This Month
Worst Performer on KOSPI Amid High Interest Rates and Housing Market Deterioration

[Asia Economy Reporter Minji Lee] Construction stocks, which had been rising early this year on the back of risk asset preference sentiment, have been declining again since the beginning of this month. This is due to the disappearance of factors that had driven stock prices up, such as real estate regulation easing and interest rate cut expectations, along with growing concerns about sluggish industry conditions.

According to the Korea Exchange, the construction industry index fell 3.92% from the start of this month through the 9th, marking the largest decline among all KOSPI sector indices. Over the past month, the index had risen more than 8% amid heightened expectations for interest rate cuts and real estate regulation easing, but these expectations have faded, leading to a weak trend this month.

The main factors limiting the rise of the construction industry index are high interest rates and a sluggish domestic housing market. Due to prolonged inflation, raw material costs have surged, causing housing cost ratios to soar, while high interest rates have increased construction cost burdens. In this situation, both metropolitan and regional projects have shown low sales rates (unsold units), increasing profitability pressures on construction companies. Recently, concerns over construction stocks have intensified as Daewoo Engineering & Construction judged that the Ulsan Dong-gu Ilsan-dong Prugio project lacked feasibility before transitioning to PF (Project Financing) due to the real estate downturn, leading to the return of construction rights.

Expectations for real estate regulation easing have also somewhat diminished. The government has firmly stated it will not artificially stimulate the economy out of concern for unsold units. Land, Infrastructure and Transport Minister Won Hee-ryong said, “The government will not intervene artificially to stimulate the real estate market or maintain specific prices.”

Researcher Sera Park of Shin Young Securities explained, “Construction companies have recently started drastically reducing new supply volumes over the past two months, and attempts to bottom out the construction industry will appear until the burden of joint guarantees by construction companies becomes visible in accounting figures. This month should be a time to watch the construction sector cautiously and conservatively.”

In fact, the combined first-quarter earnings estimates for five major construction companies (Samsung Engineering, GS Construction, Hyundai Construction, Daewoo Construction, and DL E&C) are expected to decrease by about 10% to 763.8 billion KRW compared to the same period last year (846.2 billion KRW). The only company expected to see earnings growth is Samsung Engineering. It recorded results exceeding market expectations in the fourth quarter due to affiliate project volumes, and in the first quarter, it is expected to show improved performance with expanded orders in the petrochemical sector and high profit margins in the non-petrochemical sector.

As the domestic housing market downturn is expected to continue this year, construction companies are focusing on overseas markets. The order targets proposed by the five major construction companies reach 26 trillion KRW. Among them, Samsung Engineering set a target of 12 trillion KRW, considering affiliate and negotiated contract projects. Even excluding Samsung Engineering’s share (14 trillion KRW), the other four companies set targets about 78% higher than last year’s order achievements. Kyungtae Kang, a researcher at Korea Investment & Securities, said, “Compared to domestic housing sites, overseas plant sites, where the transition from order to construction is faster and cost ratios are not significantly different, will be the focus to increase sales. If concrete results are shown at overseas sites, stock prices could also rise.”

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