The government has taken steps to revive the construction industry, which is in crisis due to a decline in the real estate project financing (PF) business. The number of construction orders in 2022 reached a record high of 216 trillion won, but last year it plunged 19% to 175 trillion won. The number of unsold housing units across the country is increasing rapidly from 17,710 in 2021 to 62,489 in 2023, and the construction industry has been frozen due to rising construction costs following high interest rates. Accordingly, the Ministry of Land, Infrastructure and Transport, the Ministry of Employment and Labor, and the Financial Services Commission held a meeting with related organizations, including the Korea Construction Association, at the Construction Center in Gangnam-gu, Seoul in the afternoon of the 6th to discuss ways of restoring vitality to the construction industry.
Graphics = Kim Seong-gyu
First, the Ministry of Land, Infrastructure and Transport will establish a PF loan repayment guarantee so that businesses that received PF loans at high interest rates without a guarantee can convert to low interest loans. The interest rate of the loan can be reduced through the guarantee of the Housing and Urban Guarantee Corporation (HUG). It was also decided to increase the amount of special loans for construction companies experiencing financial difficulties from 300 billion won to 400 billion won.
The Ministry of Land, Infrastructure and Transport also introduced measures to prevent the general construction company crisis from spreading to partner companies and workers. Normally, construction work is carried out in the form of a general construction company that accepts work from the owner and subcontracts it to a construction company that specializes in each process. However, if the main contractor in crisis, it was decided to promote ‘direct payment of conversion to the owner’ when the owner pays the amount of the subcontract. In addition, liquidity support is provided to partner companies whose sales depend more than 30% on a specific construction company by deferring debt repayment for one year and reducing interest rates. In addition, in order to protect tenants, we decided to reduce the delay in moving in by refunding the full amount already paid or replacing the construction company in the event of a sales accident.
The Ministry of Employment and Labor has introduced measures to prevent non-payment of wages to workers in the construction industry. Last year, unpaid wages in the construction industry amounted to 436.3 billion won, an increase of 49.2% from the previous year’s 292.5 billion won. The Ministry of Employment and Labor has established a special rule that requires the construction company to pay wages directly if the subcontractor fails to pay wages to workers. In addition, before the Lunar New Year holiday, it was decided to inspect 500 sites with a construction cost of more than 3 billion won. 105 sites of Taeyoung Construction, which started practice (improvement of corporate structure) in December last year, are also subject to inspection. The Ministry of Employment and Labor plans to strengthen supervision in the workplace, including special supervision for businesses with persistent payment shortfalls, while also supporting the settlement of unpaid wages by easing loan requirements for businesses with deferred wages. The Ministry of Employment and Labor also extended the repayment period for living expenses loans for workers who have not received a salary since last month.
The Financial Services Commission decided to focus its efforts on a soft landing in PF real estate through a market stabilization program worth 85 trillion won. In addition, we intend to create a best practice for real estate PF soft landing based on the corporate improvement plan that Taeyoung Construction will prepare by April 10th. Minister of Land, Infrastructure and Transport Sang-woo Park said, “I hope the construction industry will use this situation as an opportunity to diversify its portfolio, develop technology, and advance overseas into high value-added areas.”
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