About one-quarter of the nation's post-completion unsold units, so-called "toxic unsold units," were concentrated in Daegu and North Gyeongsang (TK). As the slump in regional housing markets drags on, construction firms based in Daegu and North Gyeongsang are turning to redevelopment and reconstruction projects in Seoul and the surrounding metropolitan area. Some companies are shifting the center of gravity of their business to the Seoul metropolitan area to the extent of stationing key executives in Seoul.
According to the construction industry on the 31st, HS Hwasung, the No. 1 construction firm in the Daegu region by construction capability evaluation, is currently stationing its head of development business (executive director level) in Seoul to oversee its urban renewal organization. It has also expanded its dedicated urban renewal staff to eight by additionally hiring experienced professionals. As the slump in the Daegu dwellings market persists, this is a move to increase the share of metropolitan area urban renewal projects.
Building on this, HS Hwasung won the redevelopment project for Seoul's Myeonmok Station District 2-5 last year, followed by the Myeonmokbon-dong District 5 and District 2 projects this year. The company said it is focusing its capabilities on securing the Jamsil Hanshin Town reconstruction and the Seongsu-dong Shinsung Row Houses reconstruction bids in the second half of this year.
An HS Hwasung official said, "In Daegu, new dwellings permits have dropped sharply, and it has become difficult to grow based on the local market alone," adding, "We recently recruited a head of development business from Samsung C&T to strengthen our urban renewal organization centered on Seoul, and we plan to further expand the proportion of projects in Seoul going forward."
In fact, the scale of toxic unsold units in the Daegu–North Gyeongsang area is among the highest in the country. According to the Ministry of Land, Infrastructure and Transport, as of the end of March this year, there were 30,429 dwellings nationwide that remained unsold after completion. Of these, Daegu accounted for 4,050 units and North Gyeongsang for 3,004 units, totaling 7,054 units for the two regions. That amounts to 23.2% of the nationwide supply. Looking only at toxic unsold units in non-metropolitan regions (26,003 units), the share rises to 27.1%.
Toxic unsold units are inventory that remains unsold even though construction is complete and move-in is possible. They are regarded as a stronger indicator of market downturn than ordinary unsold units. In particular, cases continue in which contracts are not concluded despite changes in terms such as discounted sales, balance payment support, and free options.
Other Daegu-based construction firms are also moving to craft survival strategies. Seohan Engineering & Construction, the region's No. 2 builder, is expanding its business scope to the Chungcheong region and the outskirts of the Seoul metropolitan area, while Taeyoung E&C is increasing the share of Korea Land and Housing Corporation (LH) public projects and nonresidential construction to address contingent liabilities from project financing (PF). HXD Hwasung Development is likewise working to increase orders for public projects in the metropolitan area and urban renewal projects, reducing its dependence on regional dwellings projects. Woobang of SM Group is also assessed to be maintaining a conservative management stance centered on public works and out-of-region orders.
With delayed cost recovery and PF burdens overlapping, liquidity pressures are mounting on mid-sized regional builders. In fact, in January–February this year, 14 general contractors and 67 specialty contractors in the Daegu–North Gyeongsang area closed down.
However, some argue that the Daegu real estate market is already near a bottom phase. Song Won-bae, CEO of Daeyoung Redeco and Bilsabu, said, "Daegu's unsold inventory fell from about 14,000 units in 2022 to below 5,000 units now," adding, "However, a significant portion of the remaining inventory is toxic unsold complexes with weak location competitiveness, so market distortion persists."