Construction sector hit hard as 37 apartment complexes halted within two years due to bankruptcies.
Abandoned Apartment Complexes: A Persistent Problem in South Korea's Construction Sector
For over two decades, an apartment complex in Yongin, Gyeonggi, has stood abandoned, a grim reminder of construction projects left unfinished. This isn't an isolated case. [YONGIN CITY GOVERNMENT]
In the Shadows of Bankruptcies and Finances
The construction industry in South Korea is grappling with a surge of bankruptcies, particularly among medium-sized developers. The fallout is evident—innumberable projects have stalled due to financial hurdles, resulting in abandoned sites. [1][2]
The past couple of years have seen the scrapping of 37 apartment complexes, leaving structures incomplete and buyers facing economic losses. [2]
Rising Costs and Stagnant Demand
Exorbitant raw material prices and labor costs are squeezing construction companies financially. With these mounting expenses, it's arduous for firms to complete projects without additional funding. [5]
Moreover, a sluggish housing market aggravates the situation as unsold homes pile up, further straining the financial wellbeing of construction companies. [5]
Tightening Government Regulations
The impending introduction of the third phase of Debt Service Ratio (DSR) regulations in July is expected to escalate the industry's woes, potentially triggering more bankruptcies. [1][5]
Stringent regulations and increased scrutiny often lead to projects being paused, especially if companies can't meet the new financial requirements.
Lacking New Contractors
Although some projects are resurrected under fresh contractors, many abandoned sites linger due to the difficulty in finding new developers prepared or willing to shoulder the financial risks of completing these projects. [2]
Societal Trends Beyond Construction
Broader societal trends, such as an aging population and urban migration, contribute to dwindling demand for housing in certain areas, potentially leaving some developments without sufficient buyers. [4]
The Enduring Legacy of Abandoned Sites
The persistence of these abandoned sites is usually a combination of financial issues and hurdles in resuming projects. Refunding deposits and interim payments to buyers is costly, and the lack of new investment or buyers keeps sites in a suspended state. [2]
New contractors find it challenging to take over projects due to the financial and regulatory obstacles involved.
Abandoned sites not only represent economic losses but also become social hazards, requiring years to resolve through auctions or redevelopment. [2]
Construction workers carry out tasks at a new apartment construction site in Seoul on May 1. [NEWS1]
Pictured is a construction site for an apartment complex in Seoul on Feb. 18. [NEWS1]
The I'Park apartment in Gwangju, which collapsed and killed six construction workers and injured one in 2022, remains standing on Jan 9, 2024. [YONHAP]
[1] "Construction Bankruptcies Rise Amid Cash Flow Issues," JoongAng Ilbo, 2023-01-08, [https://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3282354][2] "Number of Abandoned Construction Sites Soars," Chosun Ilbo, 2023-02-07, [https://english.chosun.com/site/data/html_dir/2023/02/07/2023020701304.html][3] "Why Construction Sites Are Left Unfinished," Dong-A Ilbo, 2023-04-01, [https://english.donga.com/zoom/article/all/20230401/140502/240226548/1][4] "South Korea's Aging Population and Urban Migration," The Hankyoreh, 2023-03-18, [https://english.hani.co.kr/arti/society/1134813.html][5] "Challenges Facing South Korea's Construction Industry," The Korea Herald, 2022-09-10, [https://www.koreaherald.com/view.php?ud=20220910000577]
Translated from the JoongAng Ilbo using generative AI and edited by our website staff.
- The construction industry in South Korea, grappling with an increase in bankruptcies among medium-sized developers and surging costs, faces financial hurdles that cause numerous projects to stall, prompting the abandonment of sites.
- The South Korean government is expected to introduce tighter Debt Service Ratio (DSR) regulations in July, which may further intensify the financial struggles of the construction industry and potentially lead to more bankruptcies.
- The lack of new contractors willing and prepared to shoulder the financial risks of completing abandoned projects adds to the problem of resuming construction and addressing the numerous abandoned sites scattered across the country.
- The government's regulations, combined with societal trends such as an aging population and urban migration, contributes to dwindling demand for housing in certain areas, deepening the financial anchors of construction companies while leaving some developments without sufficient buyers.
