'Investors should consider buying construction stocks'

Seen above are apartment complexes in Jamsil, southeastern Seoul, on Dec. 16 when the government announced tough real estate regulations to curb surging housing prices in the capital area. Yonhap

By Lee Min-hyung

Investors should pay more attention to construction stocks, as their valuations will likely head upward after they recently hit bottom in the face of “super-tight” real estate regulations, analysts said Wednesday.

Stock prices of construction firms generally drop when the government introduces new housing regulations, such as measures to dampen investor confidence in the market.

The latest in a series of the regulatory packages was announced on Dec. 16. This also drove down stock prices of some construction companies here. While introducing the restrictions, the government reiterated its willingness to impose tougher measures unless the latest one fails to ease soaring housing prices.

Despite the negative market condition, experts advise investors to closely watch undervalued construction players.

“Stock prices of major construction companies have recently hit a historical low because of real estate regulations,” said Song Yu-min, an analyst at Hanwha Investment & Securities.

For instance, GS Engineering & Construction, one of the top-tier constructors here, closed at 31,650 won ($27.19) on Tuesday, down 250 won or 0.78 percent from a day ago. The drop in the firm's valuation is more noticeable, compared with a year ago when its stock was traded at around 44,000 won.

“Property regulations made a negative impact on investment sentiment in the construction industry,” the analyst said. But for now, most of the players have more upsides than downsides in terms of stock growth outlook, according to the expert.

The real estate economist said new regulations may freeze investment appetite in the housing market, but this cannot be directly linked to constructors' earnings.

“Above all, local constructors are expanding their presence in overseas markets, and such an expectation will growth further in the future,” said the analyst. For this reason, the regulations in Korea are just one of the factors determining the growth outlook of the industry players, according to the expert.

In December, Hyundai Engineering & Construction, another Seoul-based constructor, won construction projects worth 800 billion won in Vietnam and Singapore. This year alone, the company has signed overseas construction projects worth $4 billion.

Chae Sang-wook, an analyst at Hanwha Financial Investment, said the outlook remains optimistic for the real estate-related stocks. He called the latest regulation the “pinnacle” of housing restrictions.

“The investor sentiment over the industry has already hit rock bottom, so it is high time investors collected construction stocks,” he said.

He also pointed out the nation's apartment supply will be on the rise for newly developed areas, mostly in Gyeonggi Province.