Did Gov’t Hurt Construction Firms?

“It is the abuse of development plans in the public sector that makes the whole country speculative and inflates the cost of real estate.”

Kwon Hong-sa (61, picture), the president of Construction Association of Korea, had an interview with Dong-A Ilbo on September 26. He expressed his concerns, saying, “The central and local governments are setting up too many plans, such as Multifunctional Administrative City Construction, Enterprise City, Innocity, New Town Planning, only to get more votes.”

Kwon takes an example of Singapore regarding a way of establishing development plans on the public sector.

“The Singaporean government buys the target land in silence by issuing bonds before it actually announces its development plans. And the government can only pay for interest on bonds when it starts to develop the land later.”

He explains that contrary to the Singaporean government, the Korean government announces a plan out loud before the specific plan is actually confirmed yet, thereby raising the land cost in an exorbitant level and replenishing the land compensation from taxes.

Kwon is also the president of Bando, which is a construction company of middle standing in Busan. He is concerned because the construction companies are not satisfied with current situations.

“Construction markets in provincial areas which are directly related to domestic demand are having a hard time day-by-day. If this condition continues, three out of ten construction companies would close down next year.”

Kwon ascribed the essential reason why the local companies are having a hard time to the failure of a lean-to-one-side policy, which originally aims to control the housing prices around metropolitan areas but also applies to provincial areas.

Kwon was appointed as the 23rd president of Construction Association of Korea last February, which was exceptional in that the chairmen of major construction companies have usually taken the job before him. He is considered as a “Mr. Mouth in construction industry” because of his expressive opinions.

abc@donga.com