In 2024, South Korean property market has faced significant downward pressure, directly impacting the overall construction sector, particularly the demand for polyurethanes in building insulation. The country’s construction investment is expected to shrink 2.4% year-on-year, according to a report by the Korea Research Institute for Construction Policy. Despite experiencing a significant slump last year, South Korea’s property market has yet to regain vitality in 2024. Although the house price index increased by 0.21% year-on-year in July 2024, it was adjusted to a decline of 2.28% after taking into account inflation. Particularly, the prices for smaller houses such as townhouses have dropped significantly, reflecting the continued pressure from high borrowing costs and credit tightening.

The market weakness is closely linked to the severe financial environment. South Korea’s interest rate has been raised to a 15-year high amid the tightening cycle since 2021, causing liquidity crisis in the property market and difficulties in financing. The debt crisis at the end of 2022 exacerbated this situation. Although the country has implemented emergency credit support measures, property development remains stagnant. The demand for polyurethane insulation, a versatile material widely used in the construction industry, has significantly decreased. A reduction in new construction projects is eroding demand for rigid polyurethane foam.

Although home prices in major cities like Seoul keep rising due to high construction costs and tight supplies, the price hikes have not significantly boosted the demand for polyurethane insulation. The surge in apartment prices in Seoul is mainly attributed to rising raw materials prices, labor costs and capital costs, rather than a recovery in construction activities. In this high-cost environment, the purchasing power of buyers has further weakened, making developers exercise caution in advancing new projects. Policies on lifting reconstruction restrictions and accelerating apartment reconstruction may have positive effects in the long term, but their short-term impact on market is limited.

Faced with macroeconomic pressures and property slump, South Korea’s polyurethane insulation materials market is challenging to reverse the demand decline in the near term. The key to recovery lies in policy regulations and improvements in the financial environment. With increasing construction activities, the polyurethane market may see more growth opportunities, but businesses need to navigate market uncertainties and fierce competition.