Construction firm closures reach 14-year high amid rising costs, sluggish demand

A construction site is closed in Seoul, March 13. Yonhap

The number of construction companies that went out of business rose to a 14-year high in the first three months of this year, as more of them failed to withstand surging construction costs, a sluggish housing market and other unfavorable economic conditions, government data showed Tuesday.

According to data from the government-run Knowledge Information System of Construction Industry (KISCON), a total of 160 construction companies shut down in the first quarter, up 19.4 percent from the same period last year.

It also marked the highest number since the first quarter of 2011, when a total of 164 builders went out of business.

“The data suggests an increasing number of builders are financially distressed at an unbearable level, as construction costs are rising and the housing market is unstable,” an industry official said.

The official assessed that the months-long political turmoil, caused by now-ousted President Yoon Suk Yeol’s declaration of martial law on Dec. 3, further worsened the already unfavorable economic conditions.

The pressing conditions for builders were also evidenced by the record-low number of construction companies that opened in the first quarter of this year.

KISCON's data showed a total of 131 newly registered companies in the construction sector during the corresponding period, down 6.3 percent from a year earlier. It marked the lowest number since KISCON began compiling this data in 2004.

KISCON's data aligns with multiple construction indicators highlighting the harsh business environment for builders.

For instance, newly contracted orders from January to February this year were valued at 21.7 trillion won ($15.61 billion), down 14.9 percent from the previous year, according to the Korea Research Institute for Construction Policy.

The public sector struggled more than the private sector.

The aggregate value of newly contracted orders in the public sector during the first two months of this year dropped by 26.9 percent, compared to a 9 percent decline in the private sector.