Increase in Construction Business Closures... "Not a Crisis, but Measures Needed to Prevent Expansion"

Although the number of construction industry closures in South Korea has been on the rise since the fourth quarter of last year, an analysis cautions against overinterpreting this as an industrial crisis.

A construction site of an apartment in Seoul city / Photo by Yonhap News

According to the Construction Trend Briefing (No. 907) recently published by the Korea Construction Industry Research Institute on the 20th, the number of construction business closure reports registered in the Construction Industry Knowledge Information System (KISCON) in the first quarter of this year totaled 939, marking the highest quarterly figure in the past five years.

However, among the closure reports, actual closures due to business deterioration (business abandonment) accounted for 64% of the total, or 600 cases (82 cases in general construction companies and 518 cases in specialized construction companies), while the remainder were found to be continuing their construction operations.

The discrepancy between administrative announcement closures and actual bankruptcies or closures occurred because companies holding multiple construction licenses sometimes returned some licenses or registered for business category changes during management, which were also classified as closures.

In particular, the Korea Construction Industry Research Institute judged that the consolidation of 28 specialized construction categories into 14 major categories last year led to an increase in partial returns of existing multiple licenses. It also inferred that crackdowns on paper companies conducted by some local governments such as Seoul, Gyeonggi, and Chungnam since 2019, as well as special investigations by the Ministry of Land, Infrastructure and Transport, resulted in voluntary closures due to failure to meet construction registration standards.

The institute stated, "Although fears of a wave of construction industry bankruptcies are spreading, actual closures amount to only about two-thirds of the announced figures, so it is not a situation to be overinterpreted."

However, it pointed out that the increasing trend in construction industry closures, except during the 1997 IMF foreign exchange crisis and the 2008 global financial crisis, should be closely examined.

The number of actual construction industry closures decreased from 506 cases in the first quarter of 2018 to 344 cases in the third quarter of 2020 but rose again to 535 cases in the fourth quarter of last year. In the first quarter of this year, it increased by 65 cases compared to the previous quarter. The number of closures was highest in Gyeonggi (153 cases) and Seoul (90 cases), and by industry type, the closure rate increase was notable in architectural construction for general construction and interior architectural construction for specialized construction.

Accordingly, the Korea Construction Industry Research Institute emphasized the need for proactive government measures. The institute said, "The recent increase in construction industry closures related to architectural construction is due to the 'three highs' (high interest rates, high prices, and high exchange rates) phenomenon and the global economic downturn, which have led to a decline in financial soundness as the construction market enters a downturn phase. Since the construction industry accounts for 15.4% of the Gross Domestic Product (GDP), instability in this sector could spread to a broader economic recession."

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