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Builder confidence drops amid tightened loan rules, reduced budget

South Korea’s construction business is set to slow down over the next few years due to stricter loan regulations aimed at curbing real estate speculations and the reduction in social overhead capital budget, according to local economic think tanks.

The Construction Business Survey Index, a sectoral benchmark for business sentiment, took a slight upturn this month but did not show actual growth in the number or amount of construction deals, according to data released Thursday by the Construction & Economy Research Institute of Korea.

The CBSI stood at 86.1, up 6.6 points from the previous month. A CBSI figure falling below 100 indicates that companies pessimistic over construction business prospects outnumber optimistic ones.

“The growth of the monthly figure is more attributable to seasonal factors, as it is usual for the construction business sentiment to drop during summer and rebound in the final quarter,” said an official of CERIK.

“Data shows that CBSI nose-dived in August, creating a statistic rebound effect over the following months.”

The individual indexes related to the anticipated number of construction orders and the progress of existing orders both took a downturn from the previous month.

Meanwhile, a report issued by the state-run Korea Development Bank forecast that the nation’s construction business will enter a conspicuous downtrend from year 2019, with fluctuating growth persisting until then.

“The growth in order amounts, which is a leading composite index to the industry in general, started to slow down from July this year,” the report said.

Considering that it takes one or two years until the contract amount is realized in actual sales, the construction industry’s sales performance will remain in a slow yet steady growth pattern until the end of next year, but take a dive afterwards, according to the report.

The Korea Institute of Finance also said a deceleration in the construction and equipment investment will slightly depress the nation’s growth forecast for next year.

“Both machinery investments and construction investments will slow down next year,” said a KIF official, upon explaining the institution’s conservative estimation for next year’s economic growth.

The KIF suggested that the nation’s growth will stand at 2.8 percent next year, inching down from the 3 percent earlier suggested by the Bank of Korea and the International Monetary Fund.

By Bae Hyun-jung (
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Korea Herald daum