Impeachment turmoil delays construction projects, including a Costco

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Impeachment turmoil delays construction projects, including a Costco

Published: 17 Dec. 2024, 06:00

PARK EUN-JEE
[email protected]

Audio report: written by reporters, read by AI

Landsite for Costco's Iksan branch [IKSAN CITY]

From a planned Costco store to large-scale public infrastructure projects, multiple construction plans have been delayed, or hang in the balance amid intensified uncertainties following the Korean parliament’s decision to impeach President Yoon Suk Yeol.

Since many public projects require the government’s regulatory approval, they risk losing momentum given the virtually paralyzed state of the National Assembly and interim government.

The domestic political turmoil only adds insult to the injury of the construction industry, which is reeling from overall downturn in the real estate market with smaller players already declaring bankruptcy.

In an acknowledgment of the potential hindrance of public projects, Seoul Mayor Oh Se-hoon pledged to proceed with the planned construction deals during a meeting with people from the industry.

“Seoul city will provide a minimum amount of liquidity needed by expediting public construction and orders related to it as concerns grow about the potential delay or downsizing of state-led infrastructure projects,” Oh said.

The city government will use its budget earlier than planned for maintaining and repairing aging infrastructure such as roads and water supply systems.

Still, it remains to be seen whether Oh’s commitment is enough to boost the struggling industry that has taken hits from Covid-19 and rising material costs due to inflation and weak demand for property.

A total of 27 construction companies filed for bankruptcy between January and November, doubling the figure of the previous year and the largest number since 2019.

Of them, 85 percent of them are located outside of Seoul, according to the data from the Ministry of Land, Infrastructure and Transport.

Costco’s plans to open its first branch in the Jeolla region have been also affected by ongoing political turmoil in the country.

The Washington State-based retail giant was scheduled to ink deals to purchase the 37,000-square-meter (398,265-square-foot) site in Wanggun-myeon in Iksan, North Jeolla and kick off the construction of the membership-based discount store before the end of this year.

Iksan’s city government said Monday that Costco's plan to purchase the land for its Iksan branch had been “delayed to the new year due to the current political situation of the country.”

“Costco had also notified Iksan that the U.S.-retailer was postponing its plans of sending a representative to Korea, from the U.S., to finalize the deal in the week of Dec. 16 by ironing out differences with the landowner,” Iksan mayor Jung Hun-yul said during a news conference on Dec. 12, two days before the National Assembly passed a motion to impeach President Yoon Suk Yeol.

“But we were notified by Costco that the schedules will be delayed to January of next year due to the emergency political situation in Korea.”

Iksan's city government said it is still “looking to find a compromise between the landowner and Costco.”

Iksan's city government signed a memorandum of understanding with Costco Korea and North Jeolla's state authority for the opening of the new store back in May, planning to be the 19th Costco branch in the country and the first in the Jeolla provinces.

Costco had previously asked the landowner to “relocate the nearby concrete factory” and open a new ramp to the site — which was not only “difficult” in terms of finding an alternative location, but also cost 12 billion won ($8.35 million) in reallocation alone, according to Iksan's city government.

Iksan had already suffered from Costco Korea's scrapping of a plan in 2023 when the retailer canceled its provisional contract to enter the Wangnung Logistics Complex, citing administrative delays and slow development.

“The plans this year have been delayed, but all the basic aspects have been negotiated, and we are only at the final polishing stage,” the mayor said, adding that the contract would be signed by January.

“It will, however, be difficult to open during my term.” The mayor's term ends in June 2026.

Against the unfavorable conditions, the delinquency ratio on real estate PF loans came to 3.5 percent as of June, maintaining an upward trend, according to data from the Financial Supervisory Service.

NICE Investors Service, the country’s major credit rating agency, assessed the outlook of next year’s construction industry as negative due to a multitude of challenges including shrinking demand and growing financial risks.

BY PARK EUN-JEE, KIM JUN-HEE [[email protected]]