“It has finally come”… Fear of serial bankruptcies of local construction companies becoming a reality

There is a sense of serial bankruptcy crisis in the construction industry. While a number of small local construction companies are entering rehabilitation procedures, the number of construction companies facing bankruptcy is also increasing.

According to courts on the 25th, Seoul Rehabilitation Court and Suwon Rehabilitation Court decided to initiate rehabilitation procedures for S-1 Construction and Yuwon Construction, respectively, on the 19th.

The rehabilitation procedure is a system that seeks efficient rehabilitation of the debtor or its business by adjusting the legal relationships of various stakeholders, such as creditors, shareholders, and equity holders, for a debtor facing bankruptcy due to financial difficulties.

According to the electronic disclosure system, S1 Construction is the 8th largest general construction company in the Gangwon region in construction capacity, and is currently experiencing capital erosion due to poor real estate project financing (PF) and a rapid increase in construction receivables. The court announced that S-1 Construction should submit a rehabilitation plan by July.

Yuwon Construction is a small construction company based in Pyeongtaek, Gyeonggi Province, and has received a rejection of the audit opinion from Daeju Accounting Corporation regarding its 2022 financial statements.

The number of construction companies going bankrupt is also on the rise. In the first quarter of this year (January to March), the number of construction companies that went bankrupt across the country (excluding construction companies with current account suspension announced by the Korea Financial Telecommunications and Clearings & Clearings Institute and companies closed or deregistered at the time of current account transaction suspension) decreased from 3 in January to February. A total of 9 locations (Construction Industry Knowledge Information System) were counted, including 2 locations and 4 locations in March. By region, there are 1 in Seoul, Gyeonggi, Gwangju, Ulsan, Gyeongbuk, Gyeongnam, and Jeju, and 2 in Busan, a three-fold increase from the same period last year (3).

Although the tally has not yet been completed, it is understood that one specialized construction company in the Daegu area went bankrupt this month as well. .

There are concerns about serial bankruptcies in the construction industry, especially among small local specialized construction companies, but government policies in this regard are inadequate. Previously, the government announced the ‘Construction Economy Recovery Support Plan’ on March 28th. Some measures require legal revision, and when the term of the 21st National Assembly ends, all pending bills will be discarded.

However, new legislation may be promoted once the term of the 22nd National Assembly begins. However, some point out that the timing may be delayed as construction companies go bankrupt one after another.

An official in the construction industry said, “To prevent serial bankruptcies, a more robust subcontract payment system must be established,” adding, “Support for small and medium-sized construction businesses and specialized construction businesses in charge of subcontracting is also needed, such as relaxing safety manager qualification standards following the enforcement of the Severe Accident Punishment Act.” “He urged.

The number of companies reporting voluntary closure in the first quarter of this year was 998 (134 general construction companies and 864 specialized construction companies), a 5.6% increase from the first quarter of last year (945).

The problem is that there are no signs of improvement in the industry, with the number of unsold apartments nationwide continuing to increase this year.

According to real estate R114 data, the number of unsold apartments nationwide as of February was 64,874 households, an increase for three consecutive months since December of last year. The number of unsold apartments nationwide decreased for nine consecutive months from March of last year (72,104 households) to November (57,925 households), but then began to increase again in December of last year (62,489 households).

Following the increase of more than 1,000 households to 63,755 households in January of this year, there was a similar increase in February. In particular, the number of unsold homes in Gyeonggi-do increased by 2,292 compared to December last year.

‘Unsold units after completion’, also known as malicious unsold units, have increased by 4.4% from a month ago to 11,867 households, and have been increasing in size for 7 months since August of last year. As more than 20,000 homes are sold nationwide next month, the risk of unsold homes is expected to intensify.

The housing supply drought is gradually becoming a reality. Last year’s housing construction permits amounted to 388,891 households, a 25.5% decrease from a year ago (521,791 households). The occupancy volume for the three years from 2025 to 2027 is calculated to be about 450,000 households nationwide (real estate R114), which is less than half of the occupancy volume over the previous three years (about 1.03 million households).

Lee Eun-hyeong, a researcher at the Korea Construction Policy Institute, said, “Construction companies that have recently fallen into a state of complete capital erosion are generally unable to proceed with the project or are unable to proceed with the project because they are unable to transfer from the bridge loan (loan used to secure the necessary funds in the stage before starting the project) to the main PF. “Even if they do, these are places that have failed to sell or sell,” he said. “It is a problem that is virtually difficult to solve unless the high interest rates are resolved, but since it is caused by an external factor such as the United States, it is not easy to offset it domestically.”