The South Korean government's introduction of the 'Regional Construction Market Supplementation Plan,' where the Korea Land and Housing Corporation (LH) will purchase unsold dwellings, aims to address stagnation in the construction market. Despite this, the market faces significant challenges, with declining employment in the sector and increasing bankruptcies among local construction firms. Last year, construction investment dropped by 2.7 per cent, contributing to a 0.4 percentage point reduction in GDP. The Bank of Korea predicts further declines in construction investment, projecting a 1.3 per cent decrease this year.
The unsold dwelling crisis is particularly severe in major cities. As of December last year, the six metropolitan cities had 21,480 unsold units, with Incheon, Busan, Daegu, Daejeon, and Ulsan all reporting figures well above long-term averages. Notably, Incheon's unsold units were 2.3 times the long-term average. Meanwhile, construction company closures hit a record high, with 641 companies filing for closure last year and 332 more reported in January 2025.
While government intervention aims to stabilise the market, critics argue it fails to address underlying issues like population decline and infrastructure deficits. The temporary liquidity measures provided to local construction firms may only offer short-term relief without addressing the root causes of overinvestment and demand-supply mismatches. As a result, experts caution that these policies may not have the desired long-term effect on the market.
