Korea needs to draw up long-term policy steps to boost the sluggish construction sector as the industry is not only undergoing cyclical slowdowns but also has reached the maturity stage, a central bank report showed Monday.
South Korea's construction sector remained lackluster as the local economy was in a slump and the number of unsold apartments increased amid households' propensity to delay home buying due to price falls.
The recent sluggishness in the local construction sector resulted from temporary cyclical factors, but it also may have started to reach the industry maturity stage, warranting mid-term policy measures and gradual restructuring, according to a report by the Bank of Korea (BOK).
The report said that demand for housing and social infrastructure is likely to remain weaker than supply mainly because Korea's population growth will slow down and people's overall capacity to generate income will fall, driven by the retirement of baby boomers.
"As the local construction sector shows signs of reaching the industry maturity stage, more mid and long-term policy measures are needed to cope with the sluggish industry," Choi In-bang, an economist at the BOK, said in the report.
Choi said that the sector's negative impact on domestic demand and employment is far-reaching, adding that authorities need to give aggressive financial supports to cash-squeezed players whose fundamentals are sound.
The report also said that local banks should correct their lending attitude, with which they tend to provide ample liquidity to builders when industry is booming, but also aggressively retrieve loans when the economy is slowing.
South Korea's economy is losing steam, hit by faltering exports and sputtering domestic demand.
The weight of the construction sector accounted for 5.9 percent of the Korean economy in 2011, down from 8 percent in 2003, according to the central bank.
The sector's contribution to economic growth posted a 0.3 percent fall last year, indicating that the building sector even eroded the growth. In 2003, the sector's growth contribution reached 0.6 percent. (Yonhap)