As the construction slump drags on, the number of construction companies that filed for closure this year rose more than 10% from a year earlier. That means 1.8 construction firms shut down per day. Construction companies in the Seoul metropolitan area, which is relatively less affected by the real estate downturn than the provinces, accounted for half of the bankruptcies.
According to the Construction Industry Knowledge Information System (KISCON) of the Ministry of Land, Infrastructure and Transport on the 28th, 486 general contractors filed for closure from January to September this year. That comes to 1.8 general contractors shutting down per day.
This is an increase of 11.7% from the same period last year (435) and more than double the figure from the same period four years ago (226). Specialty contractors filing for closure from January to September this year also reached 2,083.
It was found that among the construction companies that went bankrupt this year, those in the Seoul metropolitan area accounted for half.
According to KISCON, the number of construction firms registered nationwide that went bankrupt from January to October this year was 16. By type, bankruptcies occurred at eight general contractors and eight specialty contractors.
By region, half were construction companies located in the Seoul metropolitan area, it was found. In particular, four construction companies in Seoul (two general contractors and two specialty contractors) went bankrupt.
In Gyeonggi as well, a total of four companies (two general contractors and two specialty contractors) went bankrupt.
By year, the number of bankrupt construction companies in Seoul and Gyeonggi is the highest since 2020. Bankrupt construction companies in Seoul fell from six in 2020 to two in 2021, three in 2022, three in 2023, and one last year, before increasing again to four this year.
Gyeonggi likewise decreased from four in 2020 to zero in 2021 and one in 2022, then increased to three in 2023, three last year, and four this year.
In the provinces this year, there were a total of eight bankruptcies: two in Busan, one in Daegu, one in Ulsan, one in North Chungcheong, two in South Chungcheong, and one in North Jeolla.
Industry officials said closures and bankruptcies are resulting from shrinking liquidity at construction companies due to prolonged high interest rates, a squeeze in the real estate project financing (PF) market, rising unsold homes, and higher construction costs.
Park Cheol-han, a research fellow at the Korea Research Institute for Construction Policy, said, "Since last year, progress payments that construction companies receive for work done have declined year over year for 16 consecutive months," adding, "Because the volume of work is decreasing that much, more construction companies have no choice but to opt for closure."
Research fellow Park added, "After the martial law incident last year, orders for public works were constrained, and the strengthening of the Serious Accidents Punishment Act made it difficult for construction companies to expand order intake, which also contributed to the increase in closures."
From January to August this year, nationwide building construction starts totaled 50.43 million square meters, down 17% from the same period last year (6,073 square meters). It is the smallest volume since 2009 (41.60 million square meters), following the global financial crisis.
The construction industry cold spell is expected to continue for some time. According to the Bank of Korea, construction investment in the third quarter of this year fell 0.1% from the second quarter. Construction investment has contracted for six consecutive quarters after declining 3.3% in the second quarter of last year.
Park said, "Because the domestic economy was so weak this year, the construction cycle may look better next year than this year due to base effects," but added, "There are limits to seeing this as a signal that the construction market is truly recovering."