This year, the scale of presale guarantee accidents at the Korea Housing & Urban Guarantee Corporation (HUG) plunged to the 70 billion won range. Accident amounts that each topped 1 trillion won in 2023 and 2024 fell below 100 billion won in two to three years. On the surface, it may appear that the risk of insolvency at dwelling construction business sites has decreased, but people in the industry say the decline stems more from a reduction in new dwelling projects than from a recovery in construction conditions.
According to HUG's data on "presale guarantee (including lease guarantee before use inspection) accidents" on the 22nd, from the start of the year through the 19th, two business sites saw guarantee accidents, with accident amounts totaling 71.8 billion won. Compared with accident amounts of 1.1708 trillion won in 2023 and 1.1558 trillion won in 2024, that is a decrease of about 94%.
A presale guarantee is a product under which HUG executes the presale of the dwelling in question or assumes responsibility for refunding paid deposits and interim payments if a dwelling developer cannot fulfill a presale contract due to reasons such as default or bankruptcy. Lease guarantee accidents before use refer to a product in which HUG provides a guarantee for construction of rental apartments before use.
The business sites with accidents this year are two: "Sasang Station Kyungbo Centrian Phase 3" in Busan and "Baeksa District Block 2 private rental dwelling new construction" in Icheon, Gyeonggi. The Busan business site recorded 43.5 billion won in guarantee amounts from a presale guarantee accident, and the Icheon business site recorded 28.3 billion won in guarantee amounts from a lease deposit guarantee accident before use inspection.
HUG guarantee accidents surged to 15 business sites and 1.1708 trillion won in 2023, and remained high in 2024 at 17 business sites and 1.1558 trillion won. They then fell last year to seven business sites and 354.3 billion won, and this year decreased to 71.8 billion won. Looking at the figures alone, the risk of guarantee accidents appears to have dropped significantly.
However, the construction industry still feels a chill. With prolonged high interest rates, soaring construction costs, and rising unsold inventory overlapping, new project pushes have contracted sharply, especially among mid-sized and small local builders. The decline in guarantee accidents is more likely the result of fewer business sites applying for presale guarantees in the first place than normalization of insolvent establishments.
Weakness in the local dwellings market is particularly pronounced. In regions with high concerns about unsold units, more developers are delaying new presales or abandoning projects due to uncertain profitability. For mid-sized and small builders with weaker financing power, the burden of financial expense has grown, making it difficult to even start projects. That is why some interpret the decline in guarantee accidents as closer to a "denominator drop" from market contraction rather than an improvement in builders' financial soundness.
In reality, insolvency risk in the construction industry remains high. According to the Construction Brief report by the Construction & Economy Research Institute of Korea, 1,088 construction firms closed in the first quarter of this year, up 17.6% from 925 a year earlier. Among construction companies subject to external audits, 44.2% were marginal firms with an interest coverage ratio below 1, unable to cover even interest expense with operating profit. That means more than four out of 10 builders are struggling to pay interest from what they earn.
A construction industry official said, "Since last year, presale guarantee accidents have been decreasing, but it is hard to see that as merely a reduction in insolvency risk at business sites," and added, "With rising concerns about unsold units, many cannot even start dwelling projects at all, shrinking the overall scale of presale guarantees and, as a result, reducing accidents."
HUG's presale guarantee amounts outside the Seoul metropolitan area are also declining. Last year, HUG's presale guarantees in non-capital regions totaled 2.53854 trillion won, down 23.2% from 3.30477 trillion won in the previous year, 2024. As dwelling supply conditions worsened mainly outside the capital region, the demand for guarantees itself decreased.
HUG is moving to expand guarantee support to ease the contraction in dwelling supply. On the 9th, HUG said it would cut fees by 30% for products such as dwelling presale guarantees and lease deposit guarantees before use inspection to promote builders' dwelling supply.