"More Than 7 Out of 10 Construction Companies Struggle to Cover Interest Expenses"

More than 7 out of 10 domestic construction companies are struggling with financing, finding interest expenses burdensome.

FKI Tower Yeouido, Seoul, Korea Economic Association Monument. Photo by Jinhyung Kang aymsdream@

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The Korea Economic Association (KEA) announced on the 19th that, according to a survey commissioned to market research firm Mono Research targeting the top 500 domestic construction companies by sales (102 companies responded), 76.4% of the respondents said they currently find it difficult to cover interest expenses with operating profits. Only 17.7% answered that they have some leeway.

Recently, only 18.6% responded that their financial situation is favorable. Most answered that it is similar to usual (43.1%) or difficult (38.3%).

Regarding the outlook for the funding market in the second half of the year, more than half of the respondents (52.9%) said it would remain similar to the current situation, while 33.4% expected it to worsen. Only 13.7% anticipated improvement. The most frequently cited factors negatively affecting financial conditions were rising raw material prices and labor costs (31.4%). High borrowing interest rates (24.5%) and a reduction in new contracts (16.7%) followed.

As for the base interest rate by the end of this year, the most common response (32.4%) was that it would be "maintained at the current level (3.5%)." The next most frequent forecast (30.4%) was that the base rate would be lowered by 0.25 percentage points to 3.25%. Predictions that it would fall to 3% and that it would rise to 3.75% were both 15.7% each.

Regarding the outlook for funding demand in the second half of this year, 65.7% of respondents expected it to be similar to the current level. Those expecting an increase accounted for 26.4%, while 7.9% anticipated a decrease. The sector expected to generate funding demand most was payment for subcontractors' construction costs (32.4%), followed by advance investment projects (17.6%) and raw material and equipment purchases (16.7%).

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The biggest difficulty construction companies face when raising funds was also high loan interest rates and fees (75.5%). For stable fund management, the most frequently cited policy task was easing interest rate burdens and fee levels (39.2%), followed by stabilizing raw material prices through supply chain management (16.7%) and deregulation for a soft landing of the real estate market (16.7%).

Lee Sang-ho, head of the Economic and Industrial Division at KEA, said, "Due to complex factors such as prolonged high inflation and high interest rates, and a downturn in the real estate market, the financial cost burden on construction companies is increasing," adding, "Policy support such as easing interest rate and fee burdens, stabilizing raw material prices, and extending construction deadlines is necessary to help the construction industry overcome this critical situation."

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