Housing supply by South Korea's small and mid-sized builders has fallen about 30% as the freeze in real estate project financing, triggered by the Legoland crisis in September 2022, enters its fourth year. New project financing has contracted, and the limited funding that has been released has flowed almost entirely to large builders' prime projects in the greater Seoul area. With financial institutions growing more averse to project financing risk and the property slump outside the capital region dragging on, small and mid-sized builders that had served as the front line of regional housing supply now face the threat of collapse.
According to the Korea Housing Builders Association on the 27th, housing supply by member companies, excluding rental units, fell 29.3% to 55,019 units this year from 77,854 units in the cumulative total through September 2022, when the Legoland crisis occurred. Housing supply by small and mid-sized builders dropped 58.8% to 69,000 units last year from 169,000 units in 2021, before the crisis. That decline is steeper than the drop in nationwide apartment presales over the same period, which fell 34.3% to 195,553 units from 297,793 units, according to data compiled by R114. The share of small and mid-sized builders in total presales also shrank by more than 20 percentage points, to 35.7% last year from about 57%.
The government has rolled out support measures as part of its Aug. 13 housing supply package, including an expansion of special project financing guarantees for small and mid-sized builders, but analysts say a meaningful increase in supply will be difficult. New project financing is becoming increasingly polarized, and the property downturn outside the capital region is continuing. Supply by small and mid-sized builders rose about 19% in the first nine months of this year from a year earlier, but most of that came from presales of units approved in earlier years being pushed to market, which is far from an increase in net supply. "Since the Legoland crisis, financial institutions have been extremely conservative on project financing, and outside the capital region even bridge loans, which come at the earliest stage, are completely blocked," an association official said. "If this credit freeze in the housing construction industry is not resolved, the housing shortage could drag on for years."
As the project financing squeeze and the construction downturn persist, small and mid-sized builders are also being pushed into closure. According to the Ministry of Land, Infrastructure and Transport, 641 general construction companies nationwide filed for closure this year, up 32.4% from 484 in the same period last year.
