Worst Construction Sentiment in History

Construction business sentiment has fallen to its worst level since statistics have been collected starting in September 1998.

Accordingly, there are worries that if the construction business rapidly declines, it may worsen the overall economic slump.

The Construction and Economy Research Institute of Korea reported on Wednesday that July’s construction business survey index (CBSI) for some 300 domestic construction firms was 43.6, falling by 16.1 from June. This is the lowest figure ever since the start of this survey in November 1998, right after the foreign exchange crisis.

The latest CBSI figures, 74.4 in April, 68.5 in May, and 59.7 in June, have been consecutively falling since April. A figure under 100 means that more people answered that business was worsening instead of improving.

The fall in construction sentiment is appearing everywhere without discriminating between types of firms or company sizes and areas, including housing and civil engineering firms, large and middle-sized enterprises, and the metropolitan and provincial areas.

Some middle-sized construction firms are taking pains to make self-rescue plans, such as discontinuing new housing construction projects and reducing the workforce.

Meanwhile, the government and the Uri Party, taking into consideration the seriousness of the dismal state of the construction business, set out a measure for the construction business to land softly, with details for increasing the supply of rental houses, on July 2 at the party-government consultative conference.

However, construction firms are complaining that this measure is a rehash of the plans which have been presented so far, and that it will be incapable of blocking the freeze in the construction business.

Hongik University Economics Professor Kim Jong-suk said, “I think the government has made fine adjustments to stabilize home prices in Seoul Kangnam and the real estate market, but it has worsened the business cycle. The construction business takes up much of the entire Korean industry and may bring a huge burden to the economy.”

Kwang-Hyun Kim Cheol-Yong Lee kkh@donga.com lcy@donga.com