Construction Orders Rebound, but Recovery Still Years Away

Construction orders and permits have shown signs of recovery, yet actual construction activity remains weak, with a full-fledged sector resurgence projected not until 2027, according to the Korea Research Institute for Construction Policy. The institute's report, "Construction Market and Issues by Indicator," released on September 30, highlights that rising construction costs, financing burdens, and regional construction market slumps are hampering the industry's growth.

Despite the rebound in leading indicators, construction output fell 5.1% year-on-year through July, signaling a disconnect between improved indicators and on-site activity. Construction orders dropped 34% in July alone, casting doubt on the sustainability of this rebound. The specialty construction sector, too, faces challenges, with contract values up but the Business Survey Index (BSI) hovering at its lowest level in three years, reflecting persistently depressed business conditions.

The primary hurdle to recovery is the sharp surge in construction costs, with the price of urethane foam products up 66.5% year-on-year and asphalt prices climbing 50.8% and 38.1%, respectively. This cost pressure has reduced bidding competitiveness and heightened conflicts between general and specialty contractors. Regional construction markets are further beleaguered, with construction start areas in all 17 cities and provinces declining since 2020, with declines up to three times greater than in the Seoul metropolitan area.

Six out of ten construction companies that closed in the first half of the year were based outside the capital region. The government, in its Aug. 13 housing supply expansion measures, may offer a temporary reprieve, but a comprehensive recovery hinges on policy interventions targeting regional construction demand, and improvements in project financing and stabilization of construction costs.