The Korea Herald

지나쌤

Builders cornered by market slump, sanctions

By Korea Herald

Published : Oct. 20, 2013 - 19:22

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Local constructors, which saw all-time low sales performances in the first quarter, pledged to make up for their losses by year-end. But industry watchers said even with countermeasures it would be implausible due to the continued market slump and government sanctions.

The state-run Korea Water Resources Corp., or K-water, last week imposed a ban on 10 construction companies for rigging the bid on the four-river restoration project.

As a result, the country’s top builders including Hyundai Engineering & Construction, Daelim Engineering & Construction and GS Engineering & Construction will be prohibited from bidding in public construction for up to 15 months.

Other public organization such as the Korea Land & Housing Corp. and the Public Procurement Service, too, recently announced similar penalties for various reasons, adding to the construction industry’s financial plight.

Almost 50 builders currently face public-bidding suspension, according to the Construction Association of Korea.

“Though sanctions in the public bidding sector have frequently been observed in the past, this is an unprecedented number,” said a CAK official.

The mass penalty is expected to also deter the government’s social overhead capital business.

“Ever since the global financial crisis, the construction industry has been going downhill, with the prolonged slump of the housing market and the deterioration of overseas sales,” said an official of one of the key construction companies.

“The cutoff of public orders, no matter how temporary, may act as a final blow to some of the companies, especially those heavily dependent on government deals.”

As the overseas construction market continues to remain in the low-profit zone, most of the local builders are likely to struggle on, failing to recover their financial soundness within the year, according to the Construction Economy Research Institute of Korea.

“The government should increase its budget for social overhead capital orders, if not for the sake of the construction industry but for the general welfare of the people,” said an official at CERIK.

By Bae Hyun-jung (tellme@heraldcorp.com)