600 Billion Won Financial Package Immediately Implemented

The Ministry of Land, Infrastructure and Transport officially announced on the 16th that it will implement a 600 billion won financial support package to help the construction industry facing financial difficulties due to fallout from Middle East conflicts. The core measures involve the Construction Mutual Aid Association and the Specialty Construction Mutual Aid Association each operating 300 billion won in low-rate special loans, while the Korea Housing Finance & Guarantee Corporation (HUG) will reduce guarantee fees by up to 60%.

Support Measures: Two Pillars of Loans and Guarantees

Special loans will be provided at interest rates of late 2% to early 3% per annum, enabling fund raising at lower costs compared to market rates. The lending limit per member is 100 million won for the Construction Mutual Aid Association and 500 million won for the Specialty Construction Mutual Aid Association. The Specialty Construction Mutual Aid Association can accept applications immediately using its existing "Construction Stability Special Loan" program, while the Construction Mutual Aid Association plans to begin lending in May after internal procedures.

Guarantee fee reductions will also be implemented. Subcontract payment guarantees and construction machinery rental payment guarantees will be reduced by 10%, while contract guarantees and project performance guarantees requiring extension due to construction delays will be reduced by 30%. HUG will lower presale guarantee and maintenance project loan guarantee fees by 30%, and provide additional reductions of up to 60% for work sites simultaneously using project financing (PF) loan guarantees and presale guarantees. The guarantee fee reduction measures will apply from May through May 2027, with retroactive application to both new guarantees and remaining project funds of existing approved work sites.

Why Now?

This measure comes as a follow-up to a joint meeting of the construction and financial sectors held on the 8th under the auspices of Prime Minister Kim Min-seok. At that time, PM Kim stated, "Difficulties are mounting as the Middle East situation increases construction costs, extends project schedules, and raises financial costs," calling for an across-the-board government response.

Instability in the Middle East is placing dual pressure on Korea's construction industry. The structure involves rising construction costs due to disruptions in raw material supply, while also increasing financial costs from construction delays. In particular, housing and maintenance project developers with high dependence on project financing (PF) have been raising concerns about the possibility of cascading defaults as sales delays compound with interest rate burdens.

Construction Industry Liquidity Crisis: Accumulated Structural Issues

Korea's construction industry's liquidity problems have accumulated in complex layers even before the Middle East variable emerged. During the period of sharp interest rate hikes in 2022-2023, the PF market tightened, creating fundraising difficulties primarily for small and mid-sized construction companies, and the 2023 Taeyoung Engineering crisis demonstrated that PF risks could escalate into systemic dangers. Subsequently, the government has rolled out multiple soft-landing measures for PF, but tensions persisted throughout the industry as high interest rates combined with rising construction costs. Now, with Middle East conflicts that intensified in the second half of 2024 amplifying uncertainties in raw material and energy prices, new downward pressure is being applied to the construction sector just as it was entering a recovery phase.

Kim Seok-ki, director of the Ministry of Land, Infrastructure and Transport's Construction Policy Division, stated, "We will cooperate with relevant agencies to minimize financial burdens and support stable project implementation."