By Kim Tong-hyung
Staff Reporter
It has been a cruel summer for the country’s construction industry, reeling from mounting bankruptcies brought on by sluggish house sales and tight lending. And there isn’t much reason to believe that things are going to get better when the winds turn cooler.
According to the Construction Association of Korea (CAK), a total of 215 developers and construction companies filed for bankruptcy this year as of July, which is about a 50 percent increase from the 141 companies during the January-July period of last year.
The body count is likely to only grow due to oversupply, rising material costs and banks cutting back on lending, industry watchers said. At the end of June, the number of unsold homes, both pre-sale and post-sale properties, reached 147,230 units, nearly 20,000 more than the previous month.
The unsold homes have so far cost the real estate companies at least 30 trillion won (about $27.4 billion), according to industry estimates.
``The account receivables from the growing vacancy will continue to have a negative impact on the cash flow for real estate companies throughout next year,’’ said Kang Kwang-sook, an analyst at CJ Investment and Securities.
``Prior to the government’s reintroduction of the price cap policy on the pre-sale prices of houses, builders sold 182,240 houses in 2007. Considering it takes an average of about three years to complete construction, the cost input for building the housing units sold in 2007 would be greatest in the second half of this year and 2009.’’
After enjoying flourishing markets in 2006 and 2007, it certainly has been a ``ratty” year for Korean construction companies, whose overzealous competition in house building in previous years is now looking like a shot in the foot.
The country’s housing supply rate reached 108 percent last June, according to government figures, with only a few major metropolitan areas like Seoul, Gyeonggi Province, Daegu and Ulsan showing room for growth.
And the central bank’s recent steps to hike key interest rate is expected to further discourage potential homebuyers from taking out mortgage loans.
``Companies have been burdened by the large number of unsold units in South Chungcheong Province and North Gyeongsang Province, but that is hardly surprising as the housing supply rate for the areas were at 133.8 percent and 127.9 percent, respectively,’’ said Seo Du-jin, an official from civic group, Citizen’s Coalition for Economic Justice.
``Another problem is that construction companies continue to predominantly supply big units above 85 square meters, when the demand is apparently stronger for smaller units.’’
The slow property market has banks now deploying stricter lending rules on project-financing loans, after lending more than 70 trillion won to the market as of June. This has small-and-medium companies dipping their hands in the private money market.