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As of the end of June, a total of 147,230 apartments were left unsold across the country. That marks a two-fold increase from the 73,772 apartments unsold at the end of 2006. Because of that, construction companies have W22.2 trillion (US$1=W1,121) in uncollected money. If you add the unsold homes built by small and medium-sized developers, there are a total of 250,000 unsold apartments across the country, and the total amount of funds tied up in them stands at over W40 trillion.
The number of unsold apartments outside the capital stands at 128,308 units, accounting for 87 percent of the total number as of the end of June. And there are more than 34,000 homes left unsold even though construction has been completed and people have begun to move in. Plenty of apartment complexes are only half filled, even though it has been more than a year since they were completed. Until the end of August of this year, a total of 251 construction companies have gone bankrupt, almost a 50 percent increase from the same period last year. It has been some time that mid-sized construction companies have been suffering from a shortage of capital, while recently some large builders have been swept up in rumors involving a liquidity crunch. There is a risk of snowballing bankruptcies.
The construction industry accounts for 15 percent of our GDP and 8 percent of total employment. That percentage is even higher in areas outside of the capital. The numbers of unsold apartments and the crisis faced by the construction industry create a welter of side effects, such as a slump in related industries, a decline in jobs and a negative impact on regional business, leading to catastrophic scenarios for provincial economies. A rise in insolvencies in the mutual savings bank industry, where loans to construction companies account for 24 percent of total outstanding loans, could lead to an overall crisis in Korea's financial sector.
Several measures announced by the government have proven useless, since they lacked substance and were merely cosmetic. A set of tax reforms announced recently to reinvigorate the real estate market has actually caused it to stagnate. The addition of mandatory three-year ownership/two-year habitation periods on homes in certain areas of the capital or in provincial regions, in exchange for steep reductions in capital gains tax, has backfired. The only reason for this crisis is the government's inability to grasp the seriousness of the situation. The ministers of strategy and finance and land should make on-site visits to regional economies and start coming up with realistic measures.
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