Korean real estate news-Exchange Rate Surge: How It Affects Korea’s Real Estate & Construction
.png)
The recent surge in exchange rates surpassing 1,460 KRW has caused widespread ripples across the Korean economy. Particularly, the construction and real estate sectors are facing compounded challenges, including rising construction costs, high-interest rates, and political uncertainty. This article delves into how the exchange rate hike is affecting these industries, examines key phenomena, and explores market forecasts.
Key Insights on Exchange Rate Impacts on Construction and Real Estate
The Impact of Rising Exchange Rates on the Construction Industry
Increasing Construction Costs and Imported Material Prices
Exchange rate surges lead to higher costs for imported raw materials, intensifying construction cost inflation.
- Construction Cost Index: Increased from a baseline of 100 in January 2020 to 130.32 in October 2024.
- Exchange Rate Movement: Jumped from 1,160 KRW in 2020 to 1,466 KRW in 2024.
Seon-gu Park, Director of the Economic and Financial Research Division at the Korea Construction Policy Institute, expressed concern:
"The recent increase in industrial electricity rates and exchange rates may significantly drive up construction costs."
He also cautioned that the Ministry of Land, Infrastructure, and Transport’s annual construction cost management goal of 2% might be exceeded.
Exchange Rate Gains and Losses for Overseas Projects
Construction companies focusing on overseas projects could benefit from foreign exchange gains. However, most major domestic construction firms primarily operate residential projects, limiting the overall impact of exchange rate fluctuations.
Rising Uncertainty in the Housing Market
Supply Shortages and Delays in Redevelopment Projects
High-interest rates and escalating construction costs have led to significant delays in redevelopment and reconstruction projects.
- Notable Cases:
- Banpo Jugong Apartment Complex 1, Section 3 Reconstruction
- Bangbae District 5 Reconstruction
- Sindang District 8 Redevelopment
These projects have encountered legal disputes and conflicts between construction companies and redevelopment associations, exacerbating delays.
Pre-sale Market Stagnation
A reduction in housing supply, coupled with regulatory constraints on pre-sale prices, has heightened risks.
- 2024 Pre-sale Volume in Seoul: Expected to decrease by 18.0% to 21,719 units, compared to 26,484 units in 2023.
- Greater Seoul Area: Anticipated to decline by 32.3%, from 126,808 units in 2023 to 85,840 units in 2024.
High Pre-sale Prices and Slow Contracts
Recently launched projects like "Seoul One I’Park" and "Yeonsinnae Yangwoo Nae-An Prestige" are struggling to complete contracts due to high pre-sale prices.
- Seoul One I’Park: Units priced at 1.28 billion–1.41 billion KRW for 84㎡, exceeding market rates.
- Yeonsinnae Yangwoo Nae-An Prestige: Units priced at 830 million–860 million KRW for 59㎡, also above local market averages.
Strategic Responses to Market Challenges
-
Cost Management:
The Ministry of Land, Infrastructure, and Transport must intensify resource efficiency measures to limit construction cost increases to their 2% annual target. -
Market Stabilization:
Policy initiatives should address redevelopment delays and mitigate the impact of high pre-sale prices to restore consumer confidence. -
Risk Management for Exchange Rate Fluctuations:
Construction companies with significant overseas operations should adopt comprehensive strategies to manage foreign exchange risks effectively.
Market Outlook
Exchange rate hikes and domestic political uncertainty are reshaping Korea’s construction and real estate markets. Addressing these challenges requires coordinated efforts between government agencies and industry stakeholders to stabilize costs, support delayed projects, and implement proactive market policies.
Additional Resources
Stay updated with daily insights on real estate trends! Don’t forget to like, comment, and subscribe 😊