Builders bet on local projects amid Middle East slowdown

By Choi Kyong-ae

Korean construction companies are looking to win contracts for more domestic housing projects this year to offset declining overseas orders, particularly from the Middle East, amid falling oil prices.

Large builders such as Hyundai Engineering & Construction and Daewoo Engineering & Construction (Daewoo E&C) have drawn up business plans for this year focusing on risk management, industry sources said on Sunday.

“We expect orders from the Middle East and other oil-producing countries will decline in the mid and long term if oil prices continue to fall,” said Daewoo E&C spokesman Her Hyun.

“For now, we do not see any sharp drop in orders to build oil and gas plants in the oil-rich countries but it will happen with lower oil prices.”

Orders to build houses and infrastructure facilities such as roads and bridges in the Middle East were already decreasing, the spokesman said.

On Friday, a barrel of crude oil finished down 1 percent for $52.69 a barrel, the lowest finish in more than five years. Prices have fallen nearly 50 percent since their peak in 2014.

In response, Daewoo E&C recently reorganized its business lineup to put more focus on winning house redevelopment and reconstruction projects while trying to retain a stable flow of overseas plant orders despite uncertainties.

“The construction market had been at rock bottom for several years since the 2008 financial crisis,” the spokesman said. “It began to recover in late 2013 due to a pent-up demand for new houses. We expect a steady recovery in the housing business in the coming two to three years.”

Construction was one of three business areas that the financial crisis hit hardest. The others were shipbuilding and shipping. The three are still unsure of any meaningful turnaround this year, because of growing uncertainties.

In Seoul alone, competition is heating up among builders as the redevelopment and reconstruction market reaches more than 25 trillion won ($22.6 billion) in terms of size, according to local reports.

The reports said small and medium-sized companies were also looking to the private-sector redevelopment market as the government did not have a plan to supply public land to construction companies for the time being.

These companies’ base business is developing public land and building apartments.