Kiwoom: "Comprehensive Labor Safety Measures Less Stringent Than Feared... Maintaining Overweight on Construction Sector"

On September 16, Kiwoom Securities maintained its "overweight" view on the construction sector, stating that the government's comprehensive labor safety measures, which include imposing fines on corporations with three or more annual fatalities, were less stringent than initially feared by the market. While the new regulations are expected to increase costs for construction companies, the firm assessed that the continued rise in property prices in Seoul and key metropolitan areas would likely have a positive impact on the stock prices of major construction firms in the medium to long term.

Shin Daehyun, a researcher at Kiwoom Securities, commented in the report "Construction Regulation - Announcement of Comprehensive Labor Safety Measures" released on the same day, "Although it is difficult to say the policy is not strict, it appears to be less severe than market concerns."

Yonhap News Agency

Among the measures announced the previous day that could significantly impact large construction companies are: ▲ Imposition of punitive fines on corporations in the event of three or more annual fatalities (up to 5% of operating profit, with a minimum of 3 billion won); ▲ Addition of "multiple annual fatalities" as a requirement for requesting business suspension for construction companies; ▲ Introduction of a new regulation to request deregistration of construction companies that have received two business suspensions in the past three years and face another reason for suspension; ▲ Strengthening of requirements restricting the employment of foreign workers by business owners involved in serious industrial accidents; ▲ Mandating sufficient construction periods to ensure safety; ▲ Granting workers the right to directly demand work stoppage or corrective action from employers in cases of imminent risk of industrial accidents; ▲ Imposing pre-sale restrictions when business suspensions are levied due to worker fatalities.

Shin noted, "Given the ongoing occurrence of safety accidents in the construction industry, some level of government intervention was necessary," adding that market concerns had been particularly focused on the first and third items even before the announcement. However, he pointed out that, contrary to earlier discussions of fines amounting to 3% of sales, the newly announced fines are set at up to 5% of operating profit and only apply in cases of three or more annual fatalities, which he assessed as "a less severe level than feared."

Nevertheless, Shin acknowledged that the tightening of safety regulations will inevitably be a burden for construction companies. He stated, "This policy confirms that the government is prioritizing safety over supply," and noted that provisions such as mandating sufficient construction periods for safety will inevitably lead to project delays. He also assessed that, given the rising proportion of foreign workers, any restrictions on their employment would inevitably result in higher construction costs.

Accordingly, Shin predicted that the government's safety-first stance would act as an obstacle to supply. In the previously announced September 7 measures, the government set a goal of starting construction on 1.35 million housing units in the metropolitan area over five years, which translates to 270,000 units per year. Shin remarked, "An annual target of 270,000 units is only achievable if both the public and private sectors are actively starting new projects," and pointed out, "In a situation where profitability is not guaranteed for development and construction projects, increased risks will reduce the visibility of the government's ambitious supply policy."

Nonetheless, he projected that construction company earnings growth and rising real estate prices would continue into 2026. Most of the government’s safety measures are expected to be implemented through legal amendments in 2026. Shin explained, "With the limited increase in new projects and rising pre-sale prices since 2024 maintaining current levels, earnings growth through improved profitability is anticipated."

He stated, "In the medium to long term, the stock prices of construction companies move in tandem with rising real estate prices," and diagnosed, "Given that supply shortages are expected to persist for several years, upward pressure on property prices in Seoul and key metropolitan areas will outweigh downward pressure." He analyzed that, with strong demand for new properties and limited supply, pre-sale prices will continue to rise. He further commented, "The increase in construction costs can also be reflected in pre-sale prices," and concluded, "As demand for prime properties remains robust, the upward trend in property prices in Seoul and major metropolitan areas is likely to continue."

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