Accounts receivable that major builders were unable to collect for more than a year or determined were uncollectible and booked as losses jumped more than 70% in a year. Money was lost mainly as unsold inventory piled up at business sites such as Knowledge Industry Complexes and offices, which are work facilities, and living-type accommodation facilities where residency is not allowed. Some builders also repaid project financing (PF) loans on behalf of developers or injected billions of won through payment guarantees on developers' loans.
According to Korea Ratings on the 8th, the amount of accounts receivable that 13 major builders with credit ratings (Hyundai Engineering & Construction, DL E&C, POSCO E&C, GS Engineering & Construction, Lotte Engineering & Construction, IPARK Hyundai Development Company, Shinsegae Engineering & Construction, SK ecoplant, KCC E&C, Seohee Construction, BS Hanyang, IS Dongseo, Chinhung International) failed to collect for more than a year or finalized as losses (bad-debt write-offs) totaled 8 trillion won at the end of last year. These receivables mainly include construction receivables and sales receivables, and they increased 70.2% (3.3 trillion won) from 4.7 trillion won in 2024. Over the same period, the share of such receivables in builders' aggregates of accounts receivable rose to 32% from 24%. One-third of total accounts receivable is money uncollected for more than a year or written off as bad debt.
Kim Sang-su, a senior analyst at Korea Ratings, said, "Builders get paid for construction costs when sales proceeds come in, but as sales schedules are delayed or unsold inventory increases, uncollected accounts receivable pile up." Kim added, "There are also many business sites with construction under way, and it is hard to estimate the sales rate at completion. More losses could occur after completion, and we plan to monitor with this as a key focus."
More builders are also repaying developers' debts or providing guarantees due to the risk of unsold units. When participating in PF projects, builders usually classify cases in which they repay a developer's loan or provide a loan payment guarantee if the developer's project does not proceed as expected as "contingent liabilities." Such contingent liabilities are increasingly becoming reality.
A representative case is IPARK Hyundai Development Company, which repaid nearly 300 billion won in loans on behalf of a developer last year. In Aug. last year, when developer JK Mirae failed to repay 294 billion won in main PF loans for the "Gangdong I'Park The River" business site in Gangdong District, Seoul, Hyundai Development Company made a subrogation payment. Gangdong I'Park The River is a building created as part of Godeok Biz Valley (Godeok Commercial and Business Complex District), developed across 234,523 square meters (about 70,951 pyeong) at 345 Goduk-dong, Gangdong District. It was built on a site area of 35,916 square meters (about 10,864 pyeong) with six basement floors to 21 above-ground floors and was sold for uses including retail facilities, sports facilities, cultural and assembly facilities, work facilities, and Class 1 and 2 neighborhood living facilities. It was completed in Feb. 2025, and Gangdong IKEA also bought units and is operating there. The commercial facilities achieved a 100% tenant attraction rate. However, for the office, which is a work facility, the sales rate and actual occupancy rate are sluggish due to issues such as uncollected remaining balances and a collective move-in refusal by allottees.
About 200 allottees filed a lawsuit seeking to cancel their sales contracts and recover sales payments over alleged false and exaggerated advertising, saying the office, which is a work facility, was promoted at the time of sale as being suitable for actual residency, naming builder Hyundai Development Company and JK Mirae as defendants. A Hyundai Development Company official said, "We cannot disclose the situation regarding ongoing litigation."
SK ecoplant also provided a payment guarantee last year for a developer loan tied to a Knowledge Industry Complex development project. As unsold units emerged at the "Dangsan Station Phase 2 SK V1" Knowledge Industry Complex, the developer converted the main PF into a 66.8 billion won unsold-collateral loan secured by the unsold facilities, and SK ecoplant provided a payment guarantee in the process. Sales began in Nov. 2022 and are still ongoing. Shinsegae Engineering & Construction has also provided 81 billion won in repayment (guarantee) for "Galmae Hubal Nine," a Knowledge Industry Complex in Guri, Gyeonggi Province, and "Believe Paragraph Haeundae," a living-type accommodation facility in U-dong, Haeundae District, Busan.
Shin Bo-yeon, a professor at Sejong University's Department of Real Estate AI Convergence, said, "Demand for nonresidential facilities such as Knowledge Industry Complexes and offices has fallen sharply since COVID-19 due to changes in work environments such as the spread of working from home, and investors seeking to buy into sales faced higher loan interest as rates surged, which also hurt investment sentiment." Shin added, "As investors' expected returns fall like this, the vicious cycle of unsold units deepens."