Builders face setbacks as gov't introduces new measures to slow housing market
Apartment complexes in Suwon, Gyeonggi Province, Wednesday / Yonhap
Construction companies face a negative business outlook as the government’s new real estate regulations announced Wednesday are expected to curb home sales and delay redevelopment projects, analysts said Thursday.
The new rules, aimed at reining in soaring housing prices in the Seoul metropolitan area, expand regulated zones to all of Seoul and 12 areas in Gyeonggi Province, sharply reducing loan limits and imposing stricter residency requirements.
Bae Se-ho, an analyst with iM Securities, said the expansion of regulated areas poses challenges for builders, as it increases the likelihood of applying the presale housing price cap and could slow the pace of redevelopment projects.
“When an area is designated a speculative overheated zone, private land may also be subject to the price ceiling. In Seoul, more than 80 percent of new housing comes from redevelopment projects, and applying the ceiling could reduce project profitability and significantly delay progress,” he said.
“Considering the sharp rise in construction costs since 2021, which has already substantially weakened redevelopment project viability compared with pre-2020 levels, the added burden of the price ceiling may further slow project timelines.”
Bae explained that declining project profitability could lead to fewer redevelopment project orders and delayed construction starts for builders.
He also highlighted that rising costs for industrial accident responses and additional risks from the planned amendment to the Trade Union and Labor Relations Adjustment Act — better known as the “yellow envelope law” — could further weigh on domestic housing sales.
The new law, which will take effect in March next year, aims to broaden workers’ rights by allowing subcontracted workers to negotiate directly with client companies. Given its heavy reliance on outsourcing, the construction sector is cited as one of the industries likely to be most affected by the law.
Meanwhile, Kiwoom Securities analyst Shin Dae-hyun noted that short-term price growth in the real estate market is expected to slow, as the government imposed regulations over a broader area than anticipated.
He also cautioned that the expansion of regulated zones, along with stricter lending limits and resale restrictions, could create further challenges for redevelopment projects.
Nonetheless, Shin suggested that if the latest real estate measures help reduce the concentration of demand in Seoul and its surrounding area, stimulating interest in other regions, it could provide some relief for builders.
“With demand shifting partially toward regions outside the Seoul metropolitan area, it will be important to observe whether this translates into an uptick in construction starts for developers,” Shin said.