In November last year, the construction cost index rose by 29% compared to four years ago. It has been reported that small and medium-sized construction companies in the provinces are already facing insolvency or the risk of closure due to worsening management.
According to the report titled 'Seven Key Issues in the Construction Industry for 2025' released by the Korea Construction Industry Research Institute on the 12th, the financial condition of construction corporations has deteriorated due to a continuous decline in construction orders since last year, a prolonged slump in the real estate market, and rising construction costs.
The Korea Construction Industry Research Institute analyzed that with the increasing possibility of a liquidity crisis, construction companies could face significant financial risks in the future. They particularly assessed that the continued rise in construction costs since 2022 is expected to greatly impact management performance starting from the fourth quarter of last year.
The construction cost index calculated by the Korea Institute of Civil Engineering and Building Technology recorded 130.26 in November last year. This represents a 29.0% increase compared to November 2020 (100.97), before the significant rise in construction costs.
This index serves as a benchmark for analyzing fluctuations in the prices of construction projects. It is a processed figure that reflects related economic indicators such as the producer price index, taking into account the direct construction costs of materials, labor, equipment, and more.
Comparing the construction cost index, which rose by 14.8% from November 2016 (87.93) to November 2020, with the recent four-year increase (29.0%) from November 2020 to November 2024, it has surged nearly twice as much.
The Korea Construction Industry Research Institute noted that as the real estate slump continues and construction costs rise steeply, the management of small and medium-sized construction corporations is becoming increasingly difficult. They specifically analyzed that regional small construction corporations are facing the risk of insolvency or closure.
The number of construction companies that reported insolvency last year (excluding those that were closed or deregistered at the time of account suspension) was 29, the highest number in five years since 2019 (49 companies). Among these, 86.2% (25 companies) were located in provincial areas.
A representative from the Korea Construction Industry Research Institute said, "This year, there are many factors contributing to the rise in construction costs, such as increased raw material prices and supply chain difficulties leading to supply instability," and noted that there is a need for timely and effective policies to stabilize construction costs.