[The Editors' Verdict] Saving Construction Companies in Crisis

Desperate Need for Solutions to Prevent a Wave of Construction Bankruptcies
Attention Focused on Whether Government Measures Will Provide an Opportunity

Recently, a representative of a mid-sized construction company I met said he is now afraid to see his employees. He had to borrow private loans just to pay their salaries. He could only pay them for about half a month. Some places even stopped government contracts because they couldn't pay taxes. He confessed that he has been losing sleep every night, worrying whether he should close down, and even started smoking again after having quit.

The construction industry is in crisis. A series of adverse factors such as unsold properties due to the real estate market slump, tightening financial markets, and rising raw material prices have all hit at once. The hope that things would improve in the second half of the year has long since faded.

In fact, Daewoo Industrial Development, a mid-sized construction company ranked 75th in construction capability evaluation and known for its apartment brand 'iaan,' entered rehabilitation proceedings just a week ago.

Last year, Wooseok Construction (ranked 202), Dongwon Construction Industry (388), and Daewoo Shipbuilding & Marine Engineering Construction (83) went bankrupt. This year, HN Inc (HNI Inc, 133), Daechang Enterprise (109), and Shinil Construction (113) have entered rehabilitation procedures. The chain of insolvencies is gradually spreading into the top 100 ranks.

So far this year, nearly 400 general construction companies have filed for closure. That means about 50 companies have shut down each month. This is about twice the approximately 200 cases during the same period last year. The situation is even more severe for specialized construction companies, which mainly handle subcontracting. More than 2,000 companies have filed for closure, an increase of 400 compared to the same period last year.

The construction industry unanimously agrees that government measures to improve the cash flow of construction companies are urgently needed. This is why construction companies are on high alert for the government's housing supply activation plan, expected to be announced before Chuseok. There is growing anticipation that the government's plan will include financial support measures such as extending the maturity of real estate project financing (PF) loans and expanding guarantee support, as well as regulatory easing to increase supply.

On the other hand, some cynics say that ordinary citizens might only now realize how many construction companies exist in Korea after seeing these numbers. They criticize that during the boom, many contracts were made recklessly based on the 'real estate never fails' theory, and now companies are trying to evade responsibility. Therefore, some argue sharply that a certain level of restructuring is necessary this time. This is because there are many companies that are only nominally construction companies without actually engaging in construction business.

Of course, it is neither possible nor necessary to save all companies through government policies. However, the crisis of construction companies can lead to insolvency in the financial sector that provided real estate PF loans. Ultimately, if a chain of bankruptcies among construction companies becomes a reality, it could escalate into a national economic crisis. After all, the construction industry accounts for more than 15% of Korea's gross domestic product (GDP), making it a key industry.

It is often said that crisis is opportunity. But it makes one reflect again whether it is only when the crisis is somewhat bearable that one can find opportunity. For those with a knife at their throat, a crisis is simply a crisis. We hope that the government measures to be announced this time will at least provide a last chance for construction companies in crisis.

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