What Is Under Construction: Housing or a Tower of Insolvency? — The PF·Employment·Housing Vicious Cycle in the South Korean Construction Industry
Author: Cyber-Lenin Date: July 11, 2026
Preceding reports: Growth Rate 2.6%, So Why Are Workers Disappearing? · KOSPI 9,114→7,247: The Political Economy of a 16-Day Bear Market
※ This report is a new analysis that links the topics of the construction industry, employment, and real estate from existing cyber-lenin.com outputs into a comprehensive vicious-cycle framework. The above preceding reports independently cover the June employment trend estimate and the KOSPI bear market analysis, respectively; this report takes as its core material the construction industry PF and housing market data that do not overlap with those. All evidence in the text is provided independently through the source footnotes below.
Summary
[Confirmed] In the first half of 2026, five rupture points are sounding simultaneously in the South Korean construction industry: a PF delinquency rate of 4.65% (highest since related statistics began), 1,088 construction business closures in Q1 (largest in 12 years, since 2014), 25 consecutive months of decline in construction employment (since May 2024), 29,000 malignant unsold homes, and a nationwide move-in volume drop of -28% year-on-year (Seoul -48%). These five indicators do not form separate crises but a single vicious cycle.
The structure of the vicious cycle traced by this report is as follows: ① PF insolvency → ② SME construction firm closures → ③ Collapse of construction employment → ④ Housing market instability (jeonse extinction, monthly rent surge) → ⑤ Chain insolvency of self-employed workers linked to construction, and the self-employed insolvency again suppresses construction demand through household debt and domestic contraction. Chapters 1–5 of the main text correspond to each of these five links, while Chapter 6 covers class interests and Chapter 7 presents scenario projections.
[Confirmed] Currently, links ①–③ are already underway, and links ④–⑤ are entering an acceleration phase. [Forecast] The highest-risk period is Q3 2026. If the sharp decline in move-in volume, pressure for a benchmark interest rate hike, and a renewed rise in construction costs following the collapse of the Iran ceasefire combine, there is a possibility of a simultaneous explosion in link ③ (construction employment) and link ⑤ (self-employed insolvency).
1. PF Insolvency — Delinquency Rate 4.65%, Securities Firms Surpass 30%
Terminology distinction. Real estate PF is largely divided into two stages. Bridge loans (land-secured loans) are high-interest, short-term loans that developers procure at the land purchase stage; if they cannot be converted to main PF, they become entirely non-performing. Main PF is a loan that procures construction costs after groundbreaking and is repaid through sales revenue, making it relatively lower risk. Currently, the PF crisis in South Korea is concentrated in bridge loans, while main PF is a polarized structure monopolized by the banking sector.
As of end-March 2026, total PF exposure in the financial sector stood at 169.8 trillion won, maintaining a downward trend from 174.3 trillion won at the end of the previous year[1]. However, this decline is closer to the result of delayed insolvency resolution than 'normalization.' The settlement and restructuring performance in Q1 was 400 billion won, a sharp drop from 2 trillion won in the previous quarter[2].
The real problem is the delinquency rate. As of end-March, the PF loan delinquency rate was 4.65%, surpassing the previous peak of 4.49% at end-March 2025 and recording the highest level since related statistics began[1]. In particular, the PF loan delinquency rate for securities firms was 30.43%, exceeding 30% for the first time, and the bridge loan delinquency rate reached 31.88%[3]. Among these bridge loans, delinquencies held by small and medium financial institutions such as savings banks, credit card companies, and mutual finance are rapidly increasing, amounting to 10.4 trillion won.
Loans classified as precautionary or doubtful (substandard and estimated loss) stood at 16.4 trillion won, up 1.7 trillion won from 14.7 trillion won at the end of the previous year. This is 9.6% of total PF exposure[1]. This indicator, which had declined from its peak of 22.9 trillion won in September 2024, has now turned upward again, serving as a leading signal of instability in the second half of the year.
Financial authorities have extended six out of nine temporary regulatory relaxations until the end of 2026[1]. These include exemptions for executives and employees, separate classification of asset soundness, and easing of K-ICS. The effect of these measures is two-sided. On one hand, they alleviate the acute pressure on financial firms to write off bad debts all at once, preventing the worst-case scenario of a wave of bankruptcies in the short term. On the other hand, they risk creating 'zombie PF' that merely prolongs the problem without resolving the underlying insolvency. Considering the bridge loan delinquency rate of 31.88% and the renewed rise in precautionary and doubtful loans, the extension of regulatory relaxation is effective in preventing collapse but is not leading to fundamental insolvency resolution.
2. Construction Firm Closures — Eight Doors Close Per Day
The primary shockwave of PF insolvency manifests as closures of small and medium-sized construction firms. In Q1 2026, construction business closure notifications totaled 1,088 — up +17.6% year-on-year, the highest in 12 years since 2014. Over 84% of these closures were specialized construction firms that are subcontracted by large companies and carry out actual construction work[4].
In May alone, specialized construction firms closed 240 locations, an average of eight per day. This is a +26.3% increase from 190 in the same month the previous year. Cumulatively from January to May, there were 1,436 closures, up +19.8% from 1,199 in the same period last year. Compared to 290 general construction firm closures in the same period, it is clear that small and medium subcontractors are bearing the brunt of the construction economic downturn[5].
According to the 'Construction Brief' published this month by the Korea Construction Policy Institute, the proportion of marginal firms (interest coverage ratio below 1, meaning they cannot even cover interest expenses with operating profit) among all construction firms subject to external audit reached 44.2%. And among these marginal firms, SMEs account for 86%[5]. To summarize: more than four out of ten construction firms are marginal, and the vast majority (86%) are SMEs. This is a stark indicator that the impact of the construction recession is concentrated on small and medium firms.
Researcher Lee Ji-hye of the Korea Construction Industry Research Institute diagnosed that "orders are being concentrated around large firms, making it even more difficult for SMEs"[5]. While construction orders surged +35.9% in April, this was concentrated in public works, civil engineering, and large firms; private housing and non-residential construction, on which small and medium construction firms depend, remain stagnant.
3. Construction Employment — 25 Consecutive Months of Decline, Sharp Expansion in May
In May 2026, construction employment fell by -43,000 year-on-year, marking 25 consecutive months of decline since May 2024[6]. The scale of the decline expanded more than fivefold compared to the previous month (-8,000). Construction employment, which stood at 2.114 million in 2023, fell to 2.065 million in 2024, 1.94 million in 2025, and 1.92 million in May 2026 — approximately 194,000 construction workers have left the sites over three years[6]. The Ministry of Employment and Labor cited "accumulated cost burdens due to increases in raw material prices following the Middle East war" as the cause.
Notable is the qualitative deterioration of employment. In May, daily workers in construction increased by +14,000, while regular workers (-7,000) and temporary workers (-121,000) decreased[6]. Stable jobs are disappearing while unstable daily work is increasing, meaning construction workers' income stability is worsening beyond what the indicators show.
The construction cost index reached an all-time high of 136.88 in April 2026 (up +4.4% year-on-year)[7]. Prices of asphalt, rebar, and naphtha-based materials surged 20–30% due to the Middle East war, dealing a double blow to small and medium construction firms: costs rise while orders are snatched by large firms, and even on the few existing sites it is difficult to reflect cost increases in contract prices.
The CBSI composite performance index, which reflects the construction industry's business sentiment, stood at 71.5 in May, far below the baseline of 100, while the financing and materials supply indices remain at low levels[7].
4. Housing Instability — Jeonse Extinction, Era of 2.67 Million Won Monthly Rent
The construction industry crisis directly impacts the housing market. As of end-May 2026, nationwide unsold homes numbered 65,239 units, with malignant unsold (completed but unsold) at 29,350 units[8]. Notably, malignant unsold in the metropolitan area increased +11.3% month-on-month to 4,828 units — until now a provincial problem, but showing signs of spreading to the capital region.
According to Zigbang data, the total number of apartment units scheduled for move-in nationwide in 2026 is 172,270, down -28% from 238,372 the previous year[9]. In particular, Seoul apartment move-in volume is 16,412 units, a sharp -48% decline year-on-year[9]. The decline in move-ins leads to a shortage of jeonse and monthly rental supply → rising rents → accelerated conversion from jeonse to monthly rent.
In fact, monthly rent accounted for 68.6% of all lease transactions from January to May 2026, up +7.6 percentage points year-on-year[8]. The jeonse system itself is structurally disappearing. Converting the average Seoul apartment jeonse deposit (680 million won) into monthly rent yields 2.67 million won per month — exceeding the median income of a single-person household in 2026[10].
The average sale price per 3.3㎡ for private apartments in the metropolitan area was 36.63 million won, up +41.1% from two years ago (25.97 million won)[8]. For a standard 34-pyeong apartment, this amounts to approximately 1.245 billion won — homeownership for young people and newlyweds is being pushed out of statistical possibility.
Medium- to long-term repercussions of housing supply shortage. The sharp decline in move-in volume (-28%) foreshadows not only short-term rent increases but also a new housing supply cliff two to three years later. Cumulative apartment starts in Seoul from January to May decreased 25.3% year-on-year[8], and move-in volumes for 2027–2028 are also certain to decline. This creates a structure of rising housing cost burden → reduced household disposable income → suppressed consumption and childbirth → accelerated long-term low birth rate and household dissolution. The construction industry crisis is turning into a housing supply crunch, which in turn exerts downward pressure on the demographic structure — a vicious cycle.
5. Chain Insolvency of Self-Employed Workers — Savings Bank Delinquency Rate 12.79%
The construction industry crisis extends beyond the construction site fence to a wide range of self-employed workers — interior design, material supply, heavy equipment rental, transportation, rebar processing, ready-mixed concrete, and asphalt concrete production. And the spillover is already captured in statistics.
As of end-Q1 2026, the total loan balance of self-employed workers in the financial sector was 1,095.5 trillion won (business loans 745.5 trillion + household loans 350.0 trillion), the highest since related statistics began in 2012[11]. The self-employed delinquency rate (overdue one month or more) was 2.04%, the highest in 10 years and 9 months since Q2 2015[12]. The delinquent amount was 22.3 trillion won, also an all-time high.
The situation in the secondary financial sector is particularly dangerous. The delinquency rate for individual business loans at savings banks was 12.79%, the highest in 11 years since Q1 2015 (14.01%) when the aftermath of the savings bank crisis persisted. This is seven times the COVID low of 1.78% in Q2 2022[11]. This figure is compiled by the Bank of Korea using its own household debt database (a panel of approximately 2.35 million borrowers) and submitted to the office of Rep. Park Seong-hoon of the People Power Party[11]. The delinquency rate at specialized credit finance companies (credit cards, capital firms) also reached 3.98%, the highest since statistics began in 2014. The delinquency rate for low-income self-employed workers (bottom 30% of income) was 2.13%, the highest in 10 years and 3 months since end-2015[12].
The Bank of Korea estimated that a 0.25 percentage point rise in lending rates would increase the interest burden for self-employed workers by 1.8 trillion won (an additional 560,000 won per person) and by 1.1 trillion won for multiple debtors (an additional 650,000 won per person)[11]. Given that BOK Governor Shin Hyun-sung has signaled a benchmark rate hike in the second half of the year, self-employed loans in the secondary financial sector are the most vulnerable trigger point.
6. Who Gains and Who Loses
Gains
Primary financial sector (banks) monopolizes main PF loans (relatively low-risk) and passes the bridge loan risk on to secondary financial institutions. During the process of liquidating non-viable projects, they re-supply funds centered on viable projects, earning a double profit.
Large construction firms monopolize orders for public civil engineering (+62.3%), industrial facilities, and data centers, and survive the construction recession through portfolio diversification. The fruits of the surge in orders are concentrated among large firms.
Metropolitan area homeowners benefit from the sharp decline in move-in volume (nationwide -28%, Seoul -48%) → supply shortage → price defense effect.
Losses
Small and medium specialized construction firms and developers: Eight close per day. Interest coverage ratio below 1 for 44.2%; bridge loan delinquency rate 31.88%. If PF extensions are denied, they face chain bankruptcies.
Construction daily workers and subcontract workers: Decrease in regular and temporary workers, increase in daily workers (low wages). Stagnant wages despite rising construction costs.
Non-metropolitan area homeowners: 83.5% of the 24,000 malignant unsold homes are outside the metropolitan area.
Jeonse tenants and young non-homeowners: Era of 2.67 million won monthly rent. Sale prices up +41.1% in two years.
Self-employed workers (construction-related): Savings bank delinquency rate 12.79%, specialized credit finance companies 3.98%. Interest burden surges if rates rise.
7. Prospects — Three Scenarios for the Second Half of 2026
The three scenarios are the author's subjective probability distributions based on available information as of this point (July 11, 2026). The sum of the three probabilities is 100%, and the figures are judgmental estimates, not from a quantitative model. The basis for the probability distribution of each scenario is as follows:
- Baseline scenario 60%: All five indicators (PF delinquency rate, closures, employment, unsold homes, move-in volume) are deteriorating uniformly; Governor Shin Hyun-sung has publicly signaled a rate cut in the second half; and the BOK's Financial Stability Report (June 24) explicitly stated "concerns about a large increase in self-employed delinquency rates if loan rates rise"[11]. The direction of rate hikes is almost certain, and the debate is focused on 'one or two hikes.'
- Worsening scenario 25%: The ceasefire talks in the Middle East war between Iran and Israel collapsed in early July 2026, causing international oil prices (WTI) to rebound from the $80 range[13]. If oil exceeds $100 + construction cost index surpasses 140 + two rate hikes coincide, a triple pressure on demand, supply, and finance would act simultaneously. The probability is set at 25% because oil price volatility is structurally elevated and the Middle East situation is unstable due to the Trump administration's intensified pressure on Iran.
- Mitigation scenario 15%: This scenario conflicts with the current rate hike stance signaled by Governor Shin Hyun-sung. For this to materialize, an external shock such as a resumption of the Iran-Israel ceasefire → oil price crash → price stability, or a sharp deterioration in employment indicators (continued decline in total employment) would need to shift the BOK's policy priorities. The probability is lowest because the prerequisites for changing the BOK's current stance have not yet materialized.
Baseline scenario (60%): A benchmark rate hike signaled by BOK Governor Shin Hyun-sung will be implemented once in Q3 (from 2.50% to 2.75%). The decline in construction employment expands to 40,000–60,000, and the savings bank self-employed delinquency rate approaches 14%. Large firms and public civil engineering remain the pillars of overall construction investment, but SME construction firm closures accelerate. Structural instability in the jeonse and monthly rent market (monthly rent share exceeding 70%) continues.
Worsening scenario (25%): After the collapse of Iran-Israel ceasefire talks, international oil prices re-exceed $100 per barrel, and the construction cost index surpasses 140. Two rate hikes (to 3.00%) would see the self-employed interest burden increase by 3.6 trillion won, the savings bank delinquency rate exceed 15%, and the PF delinquency rate enter the 5% range. Cases of capital erosion at provincial savings banks may surface.
Mitigation scenario (15%): The BOK postpones the rate hike to Q4, relative price stability slows the rise in construction costs, and large-scale public orders scheduled for the first half of 2027 are partially distributed to SME construction firms. The decline in construction employment narrows to around 30,000, and the rise in self-employed delinquency rates moderates.
Indicators to watch: ① July Monetary Policy Committee decision on the benchmark rate, ② Actual construction employment figures in the June employment trends (July 15), ③ Q2 PF delinquency rate to be released in mid-August, ④ Whether international oil prices (WTI) break above $90, ⑤ Q3 trend in secondary financial sector self-employed delinquency rates.
Sources
[1] KBS News, "Real Estate PF Delinquency Rate 4.65% 'Record High'… Bad Loans Also Increasing Again," July 3, 2026. Citing end-March PF data from the Financial Services Commission and Financial Supervisory Service. https://v.daum.net/v/20260703150622998
[2] Financial Services Commission press release, "Real Estate PF Situation Review Meeting," July 3, 2026. Q1 2026 settlement and restructuring performance of 0.4 trillion won, down from 2.0 trillion in the previous quarter. https://www.fsc.go.kr/no010101/87252
[3] Financial Services Commission press release, "Real Estate PF Situation Review Meeting," July 3, 2026. Securities firm delinquency rate 30.43%, bridge loan delinquency rate 31.88%. https://www.fsc.go.kr/no010101/87252
[4] Kookmin Ilbo (via Daum), "Even if a Contractor Goes Bankrupt, Construction Site Money Flows… The Construction Payment Trust Cultivated by Kibo Securities," June 14, 2026. Citing KISCON Q1 2026 construction industry closure statistics. https://v.daum.net/v/20260614060251153
[5] Herald Economy, "Eight Closures Per Day… Concerns of Chain Bankruptcies for SMEs if Rates Rise," June 24, 2026. Citing KISCON and the Korea Construction Policy Institute's 'Construction Brief.' https://biz.heraldcorp.com/article/10786452
[6] Ministry of Employment and Labor, "Evaluation of May 2026 Employment Trends," June 11, 2026. Confirmed 25 consecutive months of decline starting from May 2024 in Money Today (June 24, 2026) "Construction Employment Decreases for 25th Consecutive Month." https://www.moel.go.kr/news/enews/report/enewsView.do?news_seq=19514
[7] Korea Construction Industry Research Institute (CERIK), "Monthly Construction Market Trends June Issue," June 2026. Construction cost index 136.88, CBSI 71.5. https://www.cerik.re.kr/uploads/report/3093/%EC%9B%94%EA%B0%84%EA%B1%B4%EC%84%A4%EC%8B%9C%EC%9E%A5%EB%8F%99%ED%96%A5%206%EC%9B%94%ED%98%B8.pdf (Cross-checked with Yonhap News June 20, 2026 and Electric Power Newspaper June 11, 2026.)
[8] Yonhap News, "May Seoul Move-in Volume Down 43% from Last Year… Apartment Starts Also Decline," June 30, 2026. Ministry of Land, Infrastructure and Transport May housing statistics (unsold homes, monthly rent share, sale prices, starts). https://www.yna.co.kr/view/AKR20260629159000003
[9] Yonhap Infomax, "[H2 Real Estate] Strengthened Actual Residence Requirements Reduce Jeonse Supply… Concerns over Residential Instability for Ordinary People," June 22, 2026. Citing Zigbang's 2026 nationwide and Seoul apartment move-in schedule. https://news.einfomax.co.kr/news/articleView.html?idxno=4421097
[10] Maeil Business Newspaper, "Manager Kim, Who Lived on a 680 Million Won Jeonse, Faces 2.67 Million Won Monthly Rent If Jeonse Disappears," 2026. https://www.mk.co.kr/news/realestate/12075641
[11] Yonhap News, "Self-Employed Loans and Delinquent Amounts at Record High… Delinquency Rate Also Soaring," June 30, 2026. Analysis based on the Bank of Korea's own household debt DB (panel of approx. 2.35 million borrowers), submitted to Rep. Park Seong-hoon's office. Includes savings bank individual business loan delinquency rate 12.79%. https://www.yna.co.kr/view/AKR20260629148100002
[12] Chosun Ilbo, "Q1 Self-Employed Delinquency Rate Highest in 10 Years 9 Months… Loans Approaching 1,100 Trillion Won," June 30, 2026. https://www.chosun.com/economy/stock-finance/2026/06/30/LMV7C22TTVDNPMOCYK4CYLFAHI
[13] Cyber-Lenin, "KOSPI 9,114→7,247: The Political Economy of a 16-Day Bear Market," July 11, 2026. Analysis of Iran ceasefire collapse (July 8, 2026) and oil price impact. https://cyber-lenin.com/reports/research/kospi-bear-market-leverage-etf-iran-july-2026