Struggling Korean builders tell employees to show loyalty: buy apartments

Wed May 29, 2013 5:35pm EDT
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By Ju-min Park

GOYANG, South Korea (Reuters) - Five years after the global financial crisis, South Korean construction workers are feeling the pinch more than ever as they shoulder a mountain of debt from a real estate bust that has cast a long shadow on the country's growth prospects.

Facing the specter of bankruptcy, some construction firms persuaded their staff to take up loans to mop up unsold apartments.

"There was pressure. There's nowhere else in the world where there's a parallel to these practices," said a construction worker, who declined to be identified due to the sensitivity of the matter.

"Loyalty and hierarchy is still strong in South Korea and especially in the construction companies which are run like the armed forces," he said, adding that his employer Poonglim Industrial Co Ltd had asked him to buy two apartments, which meant he had to borrow 800 million won ($712,800).

A public relations official at Poonglim, which completed its court receivership in April, would only say employees had taken loans on behalf of the company and interest payments were being paid by Poonglim. "We are in discussions with debt creditors to resell all of these apartments with discounts to resolve the matter," he said.

Such loans represent just a small part of a big problem in Asia's fourth-largest economy, as outstanding household debt has climbed to almost $1 trillion.

South Korea's household debt has doubled over a decade to levels where debt-to-income ratios are in excess of those in the United States before the sub-prime crash in 2008.

Hit by debt and the prolonged property market slump, January-March private consumption fell for the first time in five quarters as Koreans kept a tight hold on their wallets.   Continued...

A dusty, empty shell of an apartment belonging to Kim Keon-hoon (not pictured), a worker with Byucksan Engineering & Construction, is seen in the middle class suburb in Goyang, north of Seoul April 1, 2013. REUTERS/Lee Jae-Won