By Lee Hyo-sik
The number of construction companies here has declined for the first time in 18 years as many builders went bankrupt amid the prolonged property market slump. Additionally, the sluggish market conditions have discouraged the establishment of new firms.
The Construction Association of Korea (CAK) said Tuesday that the number of builders stood at 55,954 as of February, down 21 from 55,975 last December, marking the first decline since 1994.
Comprehensive construction companies that both build housing and engage in other development projects dropped to 11,495 from 11,545 over the two-month period.
But the number of builders that exclusively construct apartments and other types of housing edged up by 81 to 5,086 from 5,005, despite the continued housing market slump that began in late 2008 in the wake of the global financial crisis, according to CAK.
The number of housing-only builders peaked at 7,173 across the country in 2007 when the property market was booming. But the figure fell to as low as 4,906 in 2010 and has only recently exceeded 5,000 again.
``With the prolonged domestic housing market downturn, some builders have voluntarily shut down. Many more were forced to cease operating as they went bankrupt under piles of debts,’’ a CAK official said.
In 2010, 60 construction firms ― 33 in and around Seoul and 27 in provincial areas ― went bust. This year, eight builders have already gone belly up, including Poonglim Industrial.
Earlier this month, the country’s 30th largest builder in terms of orders was declared bankrupt after failing to honor a commercial paper worth 44 billion won.
The firm, founded in 1954, had gained popularity with its apartment brand ``Poonglim I-Want’’ over the years. It once became the nation’s 19th largest construction company in the mid-2000s.
But it began struggling with cash shortages as it was unable to sell apartments amid a sluggish housing market.
Not only Poonglim, but also several more small- and mid-sized construction firms are projected to declare themselves insolvent in the near future.
The recent shutdown of four large savings banks ― Solomon, Mirae, Korea and Hanju ― will likely have a further negative impact on the financial standing of struggling domestic builders.
The four secondary banks extended large loans to construction firms through project financing, expecting to reap huge gains from property development.
But due to the stagnant property market, many housing and other development projects came to a halt due to sluggish demand. It has made many builders financially unable to pay interest, let alone the principal.
Secondary banking institutions have in turn refrained from extending loans to the construction sector.