This year, the domestic construction market is expected to recover due to increased public housing and civil engineering orders. However, the recovery in economic sentiment is likely to be limited due to the sluggish private non-residential sector and delays in groundbreaking.
On June 18, the Korea Construction Industry Institute (KCI) held a seminar on the "2026 Second Half Construction and Real Estate Market Outlook" at the Construction Hall in Gangnam, Seoul. The institute projected that domestic construction orders would increase by 8.9% year-on-year to 240.8 trillion won, while construction investment would rise by 0.3% to 266.1 trillion won.
In his opening remarks, KCI President Lee Chung-jae emphasized that the construction industry needs innovation beyond simple regulatory improvements, calling for a comprehensive transformation of perceptions, practices, culture, and business methods. He stressed the importance of policies that pursue both market stability and competitiveness, alongside smooth funding, regional economic recovery, and the establishment of future-oriented living environments.
The seminar featured presentations and discussions on the outlook for the construction and real estate markets. Lee Ji-hye, a researcher at KCI, noted that construction orders, which had been stagnant since 2023, have begun to increase this year, driven primarily by public housing and private civil engineering projects.
However, she pointed out that the increase in orders does not directly translate to a recovery in on-site activity. "While construction orders are recovering, they are not leading to actual groundbreaking," she said, citing high interest rates, elevated construction costs, and stricter project financing reviews as barriers to funding. Additionally, she mentioned that unsold inventory in regional markets has created unfavorable conditions for sales.
Lee also highlighted that the lengthy time required for permits and groundbreaking in reconstruction and redevelopment projects contributes to the delay in recovery. She noted that the construction sector is facing more significant challenges than civil engineering.
Concerns about polarization within the construction industry were also raised. Despite an increase in construction orders, smaller construction firms are experiencing a decline in orders, with recovery primarily centered around large construction companies in metropolitan areas.
"The recovery in orders is a positive sign, but the delayed groundbreaking limits the perceived recovery in the economy," Lee stated. She called for enhanced execution of public projects and increased financial support for new sites, while also addressing the concentration of recovery in metropolitan areas and large firms.
Lee further urged the industry to diversify away from a housing-centric structure by increasing the share of non-residential sectors and improving the ability to transition from orders to groundbreaking.
Looking ahead to the second half of the year, Lee identified the expansion of public projects and increased civil engineering investment as positive factors. Conversely, she noted that policies aimed at suppressing housing demand, strengthened safety and labor regulations, ongoing project financing restructuring, and rising oil prices impacting construction costs are negative factors.
Additionally, the housing market is expected to continue its strength in metropolitan areas. Kim Sung-hwan, another researcher at KCI, projected that national housing sales prices would rise by 2.5% this year, while rental prices would increase by 5.0%.
In metropolitan areas, a decrease in new move-in volumes, rising rental prices, and a preference for new constructions are expected to contribute to an annual increase of around 4.5%. In contrast, regional markets, which have experienced a decline for several years, are projected to see only a slight annual increase of about 0.5%. However, polarization between representative complexes and less desirable areas is expected to widen.
Kim noted, "In 2026, the housing market will be dominated by upward pressure in metropolitan areas, while differentiation between prime locations and less desirable regions will intensify in the provinces." He added that the pace of transaction volumes and price increases could vary depending on the combination of policies such as loan management, supply expansion, and easing regulations on redevelopment projects.
Concerns about housing supply conditions remain. Kim pointed out that the number of housing units that have received permits but have not yet broken ground has been steadily accumulating since 2021. Although the construction rate improved slightly last year compared to the previous year, it is primarily focused on projects with secured profitability, while significant unsold inventory remains in regulated areas of metropolitan regions.
Particularly concerning for the industry is the indicator of unsold units after completion. Kim stated, "While it may seem that the number of unsold units is decreasing due to a reduction in sales, the market situation remains challenging." He noted that in some regional areas, only about half of the supplied units are being occupied, making project advancement difficult.
Recently, rising housing costs in Seoul have led to a shift in demand toward Incheon and Gyeonggi Province. He explained, "There is a relatively strong buying trend from outside investors in Incheon and Gyeonggi, as those who previously lived in Seoul are increasingly moving to these areas to secure their own homes."
He added, "Given the rising burden of housing prices in Seoul, along with interest rates and financial conditions, purchasing power remains limited." He noted that the government is also pursuing policies aimed at curbing excessive borrowing for home purchases and encouraging multi-homeowners to sell their properties.
Despite these challenges, the market has seen an increase in the proportion of record-high transactions, and rental prices continue to rise. Kim remarked, "The growing share of high-priced transactions is driving price increases, with rental prices rising rapidly alongside monthly rents."
* This article has been translated by AI.
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