'Boneless' apartment scandal may hamper Korea's overseas construction boom

Rebar and wires are exposed in the collapsed parking garage of GS E&C's apartment complex construction site in Incheon in this May 2 file photo. Yonhap

Foreign clients expected to avoid placing orders with Korean builders

By Park Jae-hyuk

The government's recent disclosure of poorly built underground parking garages of apartment complexes nationwide has not only sparked fears about the safety of Korea's housing construction, but also caused concerns over a potential setback in Korea's ambitious plan to win $50 billion in overseas construction orders every year until 2027, industry experts said Wednesday.

Given that GS E&C, DL Construction, Hyosung Heavy Industries and other major Korean builders have been criticized for building parking garages having insufficient steel bars in their pillars, the experts warned that foreign clients may avoid placing orders with those companies.

“This issue will eventually affect the overseas business of Korean builders, tarnishing the country's reputation as a construction powerhouse,” said Choe Myeong-ki, who is in charge of the construction sector in the Industrial Field Professors under supervision of the labor ministry. “Foreign clients will raise questions about the capability of Korean builders involved in poor construction.”

Korea Investment & Securities analyst Kang Kyung-tae expects a poor reputation in domestic housing construction to have a limited impact on Korean builders' bids to win overseas orders to build plants and infrastructure.

However, the analyst noted that foreign clients may avoid choosing Korean builders, if the builders are facing financial problems caused by costs for reconstruction of poorly built apartment complexes and compensation for the unit owners.

“Financial burdens may result in shortages of working capital, so foreign clients will prefer financially sound companies over problematic firms such as GS E&C,” he said.

GS E&C suffered a 414 billion won ($320 million) operating loss during the second quarter, anticipating costs of 550 billion won for tearing down and rebuilding all buildings in an apartment complex under construction in Incheon, where the roof of an underground parking garage caved in in April.

The accident occurred after HDC Hyundai Development Company's negligence in safety measures resulted in a collapse at its apartment construction site in Gwangju in January last year, killing six workers.

As the accident involving GS E&C resulted mainly from the company's omission of rebar in multiple pillars, the public has ridiculed its apartment brand Xi, calling its apartment buildings “boneless.”

In response to the growing public distrust in domestic builders, the government launched a nationwide investigation into apartment complexes, which adopted a “flat slab” construction method for building their parking garages, just as GS E&C's Incheon apartment construction site did.

The primary inspection was carried out into 91 apartment complexes which were built after Korea Land & Housing Corp. (LH), a state-run real estate developer, placed construction orders with private builders.

After the investigation, the government disclosed the names of 15 apartment complexes having poorly built parking garages.

The government is set to inspect 293 additional apartment complexes that were built in accordance with construction orders involving the private sector. Industry officials expect the forthcoming investigation will reveal more builders practicing poor construction techniques, causing them heavier financial burdens.