In 2025, South Korea’s construction industry is still undergoing a painful period of structural adjustments. Under the dual impact of macroeconomic stress and regulatory policies, the competitive landscape, technological pathways and business models of this traditional pillar industry are deeply reshaped. The transformation extends from residential buildings to commercial complexes, and from financing models to material selections.
1. Industry Contraction Under Macro Pressure: Market Frenzy is Cooling off
South Korean construction industry had long been highly leveraged, but in 2024, this model struggled to sustain due to the ongoing tightening of global monetary policies. The benchmark interest rate remained at a record high of 3.5%, leading to a 40% increase in financing costs for real estate developers compared to three years ago. As a result, the internal rate of return (IRR) in the construction sector generally fell below the minimum threshold of 5%. Land transaction volume in the Seoul metropolitan area slumped 35% year on year, and the number of pre-sale housing permits reached a ten-year low. As the market frenzy is cooling off, investments in this sector are expected to contract 2.4% year-on-year.
Against this backdrop, the apartment segment, which accounts for 70% of the residential construction market, is showing significant differentiation. Major players, such as Hyundai E&C, have begun shifting towards smaller and modular building methods, with the average size of constructed apartments reduced to 84 square meters (a 12% decrease from 2020), while increasing added value through smart home systems. Meanwhile, small and medium-sized developers are caught in a vicious cycle of “financing dilemma - slow destocking – cash flow risk”. M&A deals across the industry soared 230% year-on-year, leading to accelerated market concentration.
2. The Materials Revolution in Residential Construction: Fire Safety Requirements Driving Technological Iteration
South Korea’s building insulation market is experiencing profound shifts. The once-dominant EPS (Expanded Polystyrene) has completely exited the market due to its fire safety deficiencies (releasing toxic gases like hydrogen cyanide when burned), while the market share of PUR (Polyurethane) and PIR (Polyisocyanurate) panels has declined from a peak of 85% to 62%. In their place, phenolic foams (PF) have rapidly emerged as the popular material in the residential construction sector with a share growing from 9% to 28% within three years.
The counter-trend growth of PF is attributed to their comprehensive breakthroughs in physical properties: the limiting oxygen index reaches 36 (compared to 26 for PUR), forming a dense carbonization layer when exposed to fire, with smoke density below 5% (over 75% for PUR), and demonstrating a fire resistance limit of over 60 minutes in burn tests. More importantly, composite wall systems made of PF can reduce carbon emissions over the building’s entire lifecycle by 18%, according to a test by Korea Institute of Civil Engineering and Building Technology. Thus PF is strategically important for the country’s 2050 Carbon Neutrality Roadmap.
3. The Regulatory Revolution in Commercial Construction: New Fire Safety Regulations Reshape the Industry Landscape
The Special Act on Fire Safety Management in High-rise Buildings, implemented in March 2024, has completely rewritten the rules for the commercial construction sector. The new regulations have raised the fire-resistance rating of materials used in a building’s core structure from Class B1 (flame-resistant) to Class A2 (non-combustible), and require that curtain wall systems pass EN13501-1 fire tests. It poses a fatal blow to traditional polyurethane-based materials, which cannot meet the new regulations as their limiting oxygen index is only 22-24 and the peak heat release rate exceeds 300 kW/m² in cone calorimeter tests.
Under tough regulatory policies, the commercial insulation market has shown a polarization. Rock wool, which is rated Class A1 non-combustible, has quickly captured 60% of the public building market, while PF have occupied 35% of the high-end commercial complex sector through technological improvements (the density is increased to 80 kg/m³ and the compressive strength reaches 0.25 MPa). Notably, supertall buildings, represented by the Lotte World Tower, have begun adopting a composite system of “rock wool + aerogel”, with a thermal conductivity as low as 0.018 W/(m•K), which not only ensures fire safety but also enhances energy efficiency by 40%.
4. Adaptive Evolution of the Industry Chain: From Product Competition to System Services
In the face of dramatic market changes, South Korean building materials companies are transitioning from being single material suppliers to system solution service providers. For example, LG Hausys has launched the 5S intelligent insulation system, which integrates PF panels, phase change energy storage materials and AIoT temperature control modules, enhancing the precision of dynamic energy consumption adjustment in buildings by 70%. Oriental Chemical Industries (OCI) has adopted supercritical foaming technology, reducing the energy consumption in PF panels production by 45% and increasing the ratio of closed-cell foams to 98%, thereby promoting the green manufacturing in the industry.
The role of design institutes is also changing. The BIM-FM (Building Information Modeling - Fire Management) platform, developed under the leadership of Korean Institite of Architects, can simulate the fire spread paths of different material combinations in real time, improving the accuracy of fire risk predictions in design solutions to 92%. The application of such digital tools is driving a shift in fire protection design for buildings from experience-based to data-driven.
5. Industry Outlook: The Path to Balancing Safety and Sustainability
South Korea’s construction industry transformation reveals deep-seated contradictions in the modernization process. Companies are seeking the path to balance between safety requirements and cost constraints, regulatory intensity and market vitality, as well as technological innovation and industrial inertia. With the expansion of PF production (expected to surpass 5 million cubic meters by 2026) and breakthroughs in recycled rock wool technology (with waste utilization rates reaching 85%), South Korea may find its position in fire safety and low-carbon material sectors.
However, multiple challenges remain in the industry. The issue of PF becoming brittle in low-temperature environments has not yet been fully resolved, and the density shortcomings of rock wool limit its application in supertall buildings. Furthermore, credit tightening may delay the large-scale adoption of new technologies. How to build a more economical and sustainable technical system while ensuring the fundamental safety of buildings will be key to whether South Korea’s construction industry can successfully navigate the transformation journey.
