A wave of bankruptcies among small and mid-sized construction companies in South Korea has heightened fears of a crisis in the construction industry. As the cleanup of troubled real estate project financing (PF) loans accelerates, many builders are struggling to cope with rising construction costs and a surge in unsold inventory. Even major construction firms are selling assets to secure liquidity, fueling concerns that the construction sector may soon face a full-blown crisis.
However, despite growing concerns within the industry, experts say the risk of a wave of bankruptcies triggering systemic instability in the national economy remains low.
According to industry sources on March 4, DSME Construction filed for court receivership with the Suwon Bankruptcy Court on Feb. 27. This year, a series of small and mid-sized construction firms, including Shindonga Construction, Sambu Construction, and Angang E&C, have also sought court-led rehabilitation. A total of 29 construction companies went bankrupt last year, the highest number since 2019, when 49 firms collapsed.
Even financially stable large construction firms are taking steps to secure liquidity. Lotte E&C is considering selling its headquarters building, while SK Ecoplant and GS E&C are divesting their waste management and water treatment subsidiaries, which have long served as key revenue sources.
The deteriorating financial situation of construction companies is driven by mounting PF contingent liabilities, completion guarantee obligations, unpaid construction costs, and a surge in unsold inventory. As of September last year, PF-related contingent liabilities in the industry reached 32.5 trillion won ($22.2 billion), posing a significant risk to financial stability. This burden is expected to increase further as financial authorities intensify efforts to resolve PF-related risks.
A financial industry source said, “Authorities have instructed that struggling real estate PF projects be sent to foreclosure or auction instead of extending loans, increasing the burden on construction firms that have provided guarantees.”
The downturn in the real estate market has worsened problems for construction companies, reducing housing supply and increasing unsold units. Since 2023, fewer construction orders and a more cautious approach to starting projects have led to less upfront payment. Economic slowdown and tighter loan regulations have made it harder for companies to recover construction costs. With costs for major builders exceeding 90%, profitability has sharply declined.
