South Korean construction deals fall by record amid slowdown

SOUTH Korea’s construction deals fell by a record margin last quarter as the property market cooled, with rising interest rates weakening demand and inflation fuelling costs.

The value of contracts nationwide slid 18.4 per cent from a year earlier to 66.7 trillion won (S$68.3 billion), with most of the falls in the private sector, the Ministry of Land, Infrastructure and Transport said on Monday (Mar 27). The year-on-year drop was the biggest for comparable data dating back to 2015.

The lack of construction activity adds to factors weighing on the outlook for the economy. Gross domestic product contracted last quarter, as construction investment and exports slumped, while inflation increased expenses for both companies and consumers.

The situation is unlikely to improve significantly this year, as property prices fall while the nation’s trade deficit continues to widen. The Bank of Korea cut its growth forecast last month, reflecting a fall expected in construction investment this year.

Policymakers are particularly concerned that building firms and property developers may struggle to repay debt, as the amount of unsold housing climbs and interest rates remain elevated. Local credit markets took a hit last year when a government-backed developer of Legoland Korea missed a debt payment. BLOOMBERG