Bankrupt construction companies 2 → 5 places within a year… The number of business closure reports increased by more than 30%
“If interest rates continue to rise in the first half of next year, concerns about the bankruptcy of small and medium-sized construction companies”
Company A, a large domestic construction company, reduced its sales volume by 20,000 the next year. This is around 10,000 less than this year. Due to the uncertainty in the real estate market, the business plan for next year has not yet been established. An official from the construction company said, “I think we should turn our attention to civil, mechanical and foreign engineering projects next year, not the housing business.” This is in stark contrast to the competitive increase in workforce in the housing business sector three or four years ago due to the booming housing market.
The construction industry is in decline, with indicators of economic sentiment evaluated by construction companies falling to their worst level in 12 years. During the first half of next year (January to June), there is hope that the construction economy will decline further, and the sense of crisis in the construction industry is increasing. There are concerns that if the construction industry, which includes about 1.65 million people in the construction industry and millions of people in related industries, collapses, it could be a direct blow to the Korean economy.
According to the Korea Construction Association and the construction industry on the 20th, the number of defective construction companies increased from two last year to five this year. Medium-sized construction companies such as Woosuk Construction, ranked 202nd in the construction capability evaluation, and Dongwon Construction Industry, ranked 388th, were also included. Given that there are more than 3,000 general construction companies, not even the top 10% of construction companies have escaped bankruptcy. Reports of bankruptcies also increased significantly. According to the construction industry information system, there were 180 reports of general construction company closures in the second half of this year (as of 20 December), an increase of more than 30% from the second half of last year (135 cases). ).
There is no indication that the situation will improve in the future. The Construction Business Survey Index (CBSI) for construction companies last month published by the Korea Construction Industry Institute (Kunsan Research Institute) on the 2nd showed 52.5, down 2.9 points from the previous month. This is the lowest figure for 12 years and 3 months since August 2010 (50.1). If the CBSI is below the baseline (100), it means that more companies consider the construction business situation bad.
Park Cheol-han, a researcher at the Korea Construction Industry Institute, said, “Large construction companies are holding out at least, but for small and medium-sized construction companies, the current funding crunch will be like taking an umbrella in the rain. .” It can happen,” he said.
180 construction companies closed in the second half… Related industries such as home appliances and furniture are also hit
Concerns about the bankruptcy of small and medium-sized companies
Real estate stagnation, financial difficulties, and raw material disasters overlap
Significantly reduce the sales target for next year
Consider termination of contract for reconstruction and redevelopment projects
zoom inA construction site for an apartment building in Asan, South Chungcheong Province, on the afternoon of the 20th, amid concerns over the downturn in the construction industry and the downturn in the real estate market. Asan = Song Reporter Eun-seok silverstone@donga.comCompany B, a large construction company, sent an official letter to recently awarded reconstruction and redevelopment associations in the metropolitan area, asking them to raise the down payment. At the end of the official letter, it was added that if the situation is not going well, such as not increasing the down payment, consider canceling the contract. It was judged that it would become difficult to manage the money and that the construction work could not be carried out without paying the down payment further. Two or three years ago, construction companies were competing to win projects due to the boom in the housing market. An official from a trust company said, “The burden of interest on loans has increased, unsold units have increased, and the profitability of maintenance business has decreased.”
The reason why the construction industry is experiencing the current difficulties is mainly due to various adverse factors such as the financial crunch caused by Legoland, rising raw material prices, and strikes by the cargo unions, all at once due to the market sluggish real estate. . With the base interest rate rising one after another and the burden of loan interest increasing, even real estate project financing (PF) loans were blocked after the bankruptcy of Legoland bonds in Gangwon in October this year, causing a major problem with cash flow. The rise in raw material prices and a contraction in the pre-sale market led to a decline in profitability.
Recently, large construction companies are rushing to reduce the scale of housing projects next year compared to this year or reorganize internal personnel. Construction company C is considering a plan to transfer the number of personnel in the housing business department, which has been massively expanded in line with the booming housing market, to other areas. An official from the company explained, “We are considering converting the workforce of the housing department to the factory or the environmentally friendly construction department.”
The situation for small and medium construction companies is even more serious. Large construction companies can afford to survive with their own cash, but small and medium-sized construction companies that focus on simple contracts are very likely to lose their existence if their business is stopped due to lack of funds.
The problem of skyrocketing prices of building materials also continues. Major cement companies have announced increases in cement prices in January next year. After raising the price of cement by 17-19% in February this year, an additional increase of up to 15% was planned in the second half of this year (July-December), but the increase was delayed due to resistance from small and medium-sized ready-mixed concrete industries.
Experts point out that, if the situation continues, a series of bankruptcies of small and medium-sized construction companies during the 2008 financial crisis could happen again and deal a direct blow to the general economy. According to the Office for National Statistics, there were 1,652,000 domestic construction workers last year. Millions of people were directly or indirectly involved in the construction industry, including those working in related industries such as licensed brokerage and interiors and furniture.
The contraction in the construction industry is having an adverse effect on related industries such as home appliances, interiors and furniture. Lotte Himart, the No. 1 home appliance retailer, recently implemented an early retirement program. Sales of home appliances such as fridges and washing machines in the first to third quarter of this year fell by 15% compared to the same period last year. A home appliance industry official said, “The number of promotional events for joint purchases for customers living in large complexes has also decreased.” The interior and furniture industry is also having a hard time as the number of house moves has fallen due to a sharp drop in housing transactions. Hanssem, No. 1 in the furniture industry, turned red in the third quarter of this year (July-September) with an operating loss of 13.6 billion won.
Kwon Young-seon, a researcher at the Housing Industry Research Institute, said, “If construction companies go bankrupt in the first half of next year due to high interest rates, a sharp drop in house prices, and the suspension of PF, it could. be transferred to the second financial sector and cause a secondary shock to our economy.” There is an urgent need to resolve unsold and vacant houses.”
Reporter Jeong Soon-gu soon9@donga.com
Reporter Lee Buk-bok bless@donga.com
Reporter Kim So-min somin@donga.com
