Cash Flow Problem Hits Builders

The Korea Times

The Korea Times

National

Sun, December 10, 2023 | 00:05

Business

Cash Flow Problem Hits Builders

Posted : 2010-03-05 19:09

Updated : 2010-03-05 19:09

By Yoon Ja-young
Staff Reporter

The Korean economy is heading up, but spring hasn't come yet for construction companies.

They are facing liquidity trouble again, with unsold new apartments piling up not only in the provinces but also around Seoul.

They are suffering from rumors in the financial market that a number of small- and medium-sized builders will face bankruptcy.

According to the Ministry of Land, Transportation and Construction, the number of unsold new apartments totaled 123,297 as of December, heading up for two consecutive months.

The industry estimates the figure is around 150,000 now.

A huge complex built by one of the top constructors in Gwangmyeong, Gyeonggi Province, opened up in January, but over half of the units there are still vacant.

"To move into an apartment, people should sell their old ones first so that they can make a full payment for the new one. As there are almost no transactions in the market, they have difficulties selling their original homes," said a real estate agent in Gwangmyeong.

Apartment deals fell to 33,815 in January from over 55,000 last October.

While huge construction companies can make up for the income in infrastructure projects or from businesses overseas, small players have no way out.

These firms are hence facing increasing risks of liquidity trouble. According to Korea Ratings, project financing on 40 construction companies totaled 45 trillion won as of last September, with over half of them due this year.

Another statistic by Hi Investment & Securities shows that the corporate debt of local builders due in the first quarter this year amounts to 2 trillion won.

Lack of Restructuring Causes Trouble

Analysts criticize that uncompetitive firms survived the global financial crisis with government support.

The government gave temporary reprieves on capital gains taxes for new apartments, so that construction companies could sell them easily.

This should have been accompanied by construction companies' efforts to restructure their businesses, but they instead built more apartments amid an economic recession.

Builders are now demanding that the government extend the tax cut.

"It should be made clear who is responsible for the unsold apartments. The businesses should be induced to make efforts on their own first," said Park Jae-ryong, a researcher at Samsung Economic Research Institute.

chizpizza@koreatimes.co.kr