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Is April real estate crisis on horizon?

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Apartment complexes are seen in Seoul in this March 17 photo. Yonhap

Apartment complexes are seen in Seoul in this March 17 photo. Yonhap

Gov't and market clash amid construction sector's struggle
By Lee Yeon-woo

As the April 10 general elections approach, there is a growing debate between the government and market observers about a potential real estate crisis in April.

Some observers suggest that, after the election, construction companies could face a wave of bankruptcies — a situation the government is keen to avoid to ensure electoral success. They also raise concerns about the potential spread of insolvency to the financial sector.

Their scenario points to a buildup of unsold real estate amid a market downturn, coupled with a rise in loan interest rates that began two years ago. Compounding the issue, a significant amount of project financing (PF) obligations for construction companies are due after April.

However, the government denies these concerns.

"It appears that the portrayal of the situation might be exaggerated," Minister of Land, Infrastructure and Transport Park Sang-woo told reporters on Tuesday. "Speaking as a government official with responsibility, our agreed-upon consensus is to aim for a controlled, soft landing of the market."

Despite the government's repeated explanations, concerns and suspicions persist.

Kim Min-seok, a local real estate developer at Cube Property, believes the crisis has already begun in some form.

"The public might not realize how serious the situation is, as not every bankruptcy makes the headlines. However, many construction and development companies have already gone under," Kim said. "In the past, large project sites seldom experienced more than one or two instances of transitioning to public sales in a month if the business struggled. But now, it's common to see more than 10 such cases monthly."

Their financial difficulties can be traced back to the Legoland crisis in 2021. Since then, policy rates have been sharply rising, weakening the sentiments in the housing market.

This led to a significant rise in the industry's interests on PF loans. The situation is particularly challenging for smaller companies that lack the backing of larger parent companies.

Headquarters of Taeyoung Engineering & Construction in Seoul / Korea Times file

Headquarters of Taeyoung Engineering & Construction in Seoul / Korea Times file

Last December, Taeyoung E&C, Korea's 16th-largest builder by construction capacity, applied for a debt workout as well. However, the company's extensive involvement in PF projects and its broad network delayed the workout process, leading to its bonds being delisted from the market from Thursday.

Despite the bleak outlook for the real estate market, experts believe that the deteriorating quality of PF loans is unlikely to pose a systemic risk to the entire financial sector.

"Although delinquency rates in the secondary financial sector are rising, they remain within a manageable range," Lee Jong-ryeol, deputy governor of the Bank of Korea, said. "Financial institutions possess adequate liquidity and the ability to absorb losses, and the government is executing various policy tools to ensure stability."

Although new measures to support the recovery of the construction sector have been introduced, including improved credit lines for companies, some critics deem them insufficient to fully reassure the market.

"The continuous speculation about the April crisis, despite the government's firm rebuttals, reflects a widespread anxiety in the market and a diminishing confidence in government policies," Kim In-man, the head of Kim In-man Real Estate and Economics Institute, said.

He noted the importance of strategies that exceed market expectations and offer significant psychological reassurance rather than a simple proliferation of announcements.

The concern over real estate and PF loan crisis is expected to persist for some time.

"Trillions of won in PF loans won't collapse overnight. The unraveling has started with the less visible components, but the damage and losses are real," the developer said.

Lee Yeon-woo


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