1: Ministry of Land, Infrastructure and Transport’s budget for next year is 58.2 trillion won, down 4.5% from this year
2: Only SOC is reduced in the budget of each government sector, leading to the emergence of the ‘neglect theory’
3: First budget for 51 projects including the metropolitan railway Daejang~Hongdae Line
4: 67 projects including GTX-A Paju~Seoul Station section to be completed
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“I still regret it, but I took a step back.”
The construction industry responded to the Ministry of Land, Infrastructure and Transport’s recent announcement of next year’s budget plan. The amount set by the Ministry of Land, Infrastructure and Transport is 58.2 trillion won, a 4.5% (2.7 trillion won) decrease from this year’s budget (60.9 trillion won). Accordingly, the share of the total budget (677.4 trillion won) also decreased by 0.7 percentage points (p) from this year’s budget (9.3%) to 8.6%.
The Ministry of Land, Infrastructure and Transport’s budget has increased by more than 41% over the past 10 years, and the novel coronavirus infection (COVID-19) has played a major role. The Ministry of Land, Infrastructure and Transport’s budget has been significantly increased to stimulate domestic demand to overcome the economic recession.
In fact, in 2020 (KRW 50.1 trillion) when COVID-19 was in full swing, it exceeded KRW 50 trillion for the first time, increasing by 16.0% from the previous year (KRW 43.2 trillion), and in 2022 (KRW 60.1 trillion), it exceeded KRW 60 trillion. It then slowed down to KRW 55.8 trillion in 2023, but this year it will exceed KRW 60 trillion again, becoming the largest ever. However, it has fallen below KRW 60 trillion again in just one year.
The Ministry of Land, Infrastructure and Transport explained, “This was due to the fact that existing social overhead capital (SOC) projects such as roads, railways, and airports have been terminated and the number of new projects has decreased, which has led to a significant decrease in the related budget.”
In fact, the SOC budget has decreased by KRW 1.2 trillion (-5.8%) from KRW 20.8 trillion this year to KRW 19.6 trillion next year. In particular, the budget for new projects has decreased significantly from KRW 1.277 trillion this year to KRW 208.4 billion next year.
The construction industry is not hiding its discontent, saying that if the SOC project budget falls below 20 trillion won, the construction recession could be prolonged. The Korea Construction Association, a group of construction companies, even submitted a proposal to the Ministry of Land, Infrastructure and Transport in May asking for the SOC budget for next year to be set at 28 trillion won or more.
At the time, the association argued that “in order to pull up our economy, which is stuck in a low-growth swamp amid rapid changes in domestic and international conditions, we need to expand SOC investment, which is the most effective for economic growth and job creation.” However, the SOC budget did not increase, but rather decreased.
There are many aspects that should be taken into consideration in the construction industry’s response, rather than simply dismissing it as a simple act of tantrum to secure work. Above all, as domestic SOC was supplied intensively in the 1970s and 1980s, aging facilities are rapidly increasing, and concerns about safety are growing due to extreme climate change such as heavy rain and heat waves caused by global warming.
SOC investment also has a significant impact on the real estate market. In particular, new investments in roads and railways and construction schedules have a huge impact on the rise in housing and land prices. This is why we need to listen closely to the government’s judgment and the construction industry’s claims surrounding next year’s Ministry of Land, Infrastructure and Transport budget. Among the SOC-related budgets, we will also look at new and completed projects related to transportation networks.
● Among the 12 sectors, only SOC decreased by 1.2 trillion won
![SOC budget cut even further than this year… Will there be any problems with the timely opening of key transportation networks?[황재성의 황금알]](https://dimg.donga.com/wps/NEWS/IMAGE/2024/09/06/126889690.1.jpg "SOC budget cut even further than this year… Will there be any problems with the timely opening of key transportation networks?[황재성의 황금알]")
The Ministry of Land, Infrastructure and Transport announced that out of the 58.2 trillion won budget for next year, 19.6 trillion won was allocated to SOC and 38.6 trillion won to social welfare. It also emphasized that all budgets necessary to support the timely opening of key transportation networks such as roads, railways, and airports were reflected.
However, he added that as the SOC project is promoted according to a five-year plan, the amount of existing projects completed has decreased by 21.8% (KRW 222.3 billion) from KRW 1.0194 trillion this year to KRW 797.1 billion next year, and that of new projects has decreased by a whopping 83.7% (KRW 1.0686 trillion) from KRW 1.2770 trillion this year to KRW 208.4 billion.
The Ministry of Land, Infrastructure and Transport explained, “Transportation network plans, such as highways and national roads, rotate on a cycle from 2021 to 2025, and the railway network plan, which rotates on a 10-year basis, is also revised every five years,” adding, “As these schedules coincidentally overlap, the ratio of finances invested next year has decreased.”
In addition, “as construction costs have skyrocketed recently due to rising raw material prices, the demand for some construction has decreased due to re-examinations of appropriateness and re-examinations of feasibility, which has also affected the reduction in the SOC budget,” he predicted. “However, once many existing projects are completed next year, the budget will increase starting in 2026 when new projects begin construction.”
The construction industry expressed disappointment, saying, “This year’s SOC budget was not generous,” and “It’s a shame that the budget will be reduced even further next year.” Considering the inflation rate and the 2023 SOC budget reduction, the appropriate SOC investment was estimated at 29-30 trillion won this year, but it ended up at 26 trillion won, and it is pointed out that it will inevitably decrease even further next year.
Here, the SOC budget includes all projects of the Ministry of Oceans and Fisheries, the Ministry of Trade, Industry and Energy, and the Ministry of the Interior and Safety, in addition to the Ministry of Land, Infrastructure and Transport. The problem is that the proportion of the Ministry of Land, Infrastructure and Transport in the total SOC budget is close to 80%. As the SOC budget of the Ministry of Land, Infrastructure and Transport decreases, the overall SOC budget is bound to shrink.
The Korea Research Institute for Construction Industry, a think tank in the construction industry, also raised the “SOC neglect argument” in its weekly report “Construction Trend Briefing No. 972” released at the end of last month, saying, “Next year’s total government budget (KRW 677.4 trillion) has increased by 3.2% (KRW 20.8 trillion) from this year, but when looking at each sector, only the SOC budget has decreased.” This means that among the 12 sectors including health, welfare, employment, education, environment, and culture, sports, and tourism, only the budget related to SOC has decreased.
The Construction & Economy Research Institute also argued for the need to expand the SOC budget in a report titled “Construction Issue Focus – Aging Republic of Korea, Policy Direction of SOC Investment,” published in June, stating that “Although our country’s SOC financial investment has gone through repeated increases and decreases, when viewed in real prices reflecting the price level, (the recent budget size) is significantly lower than the 2010 level.”
The fact that domestic infrastructure was intensively supplied in the 1970s and that facilities older than 30 years are expected to account for more than 40% of the total from 2028 is also presented as grounds for expanding SOC investment. In addition, the fact that domestic SOC capital stock is 21.5% of GDP (as of 2018), lower than major advanced countries such as France (31.3%), Germany (28.7%), and the United States (22.0%) also lends support to the expansion argument.
“Considering changes in the social environment such as low birth rates, aging population, and regional extinction, as well as the decrease in private investment capacity, public investment and its role are more important than ever,” said Eom Geun-yong, a researcher at the Construction & Economy Research Institute who wrote the report. “Public construction investment should be expanded, focusing on disaster-related facilities and aging infrastructure that could result in loss of life.”
● New SOC businesses to watch for next year
The Ministry of Land, Infrastructure and Transport has included a total of 51 new projects in next year’s budget. The amount has been significantly reduced to KRW 208.4 billion, which is only 16.3% of this year’s KRW 1.277 trillion.
In terms of number of buildings, roads are the most with 15, followed by research and development (R&D, 14), industrial complexes (12), logistics and other (5), housing and railways (2 each). However, in terms of amount, housing ranked first with 42.5 billion won, followed by R&D (25.5 billion won), railways (31.2 billion won), industrial complexes (6.7 billion won), and roads (5.1 billion won).
Housing was allocated 40 billion won for housing maintenance project loans and 2.5 billion won for new city REIT investment. Maintenance project loans are intended to support the initial operating expenses of reconstruction associations in order to revitalize old urban maintenance projects and speed up reconstruction projects. New city REITs are interpreted as meaning that the government will participate in the establishment of REITs that will be in charge of financial support for the first new city reconstruction project, the pilot district of which will be decided as early as today, November.
The number of roads and the budget size have both decreased compared to this year. This year, there were 28 cases, including 2 expressways such as the Chungbuk Seocheongju-Jeungpyeong Expressway and Incheon Gyeyang-Ganghwa Expressway, 13 national roads, 1 national road bypass, and 4 nationally supported local roads, totaling 25.7 billion won. On the other hand, next year, there will be only 15 cases, including 7 national roads and 8 nationally supported local roads, totaling 5.1 billion won.
Among the road projects for next year, the national road construction project (budget: 500 million won) that expands the 12km section from Idong to Namdong in Cheoin-gu, Yongin-si, Gyeonggi-do from 4 lanes to 8 lanes stands out. This is a section of National Road No. 45 that connects Namsa-eup in Cheoin-gu, where the government has declared that it will create a state-of-the-art system semiconductor cluster national industrial complex, and Idong-eup new town.
The railway was allocated 2 places, 31.2 billion won. The number and budget size were reduced compared to this year (5 places, 45.1 billion won). However, this year, except for the construction of Ulsan Urban Railway (tram) Line 1, it is far from the establishment of new lines, as it is support for existing projects such as railway acceleration, aftercare, and increase in electric trains.
On the other hand, next year’s budget is noteworthy as it will be invested in the construction of the Daejang-Hongdae Railway (Daejang-Hongdae Line, 29.2 billion won) and the Daegu Urban Railway Yeongcheon Extension Line (2 billion won).
The Daejang-Hongdae Line is a metropolitan railway that connects Daejang New Town in Bucheon-si, Gyeonggi-do, one of the three metropolitan new towns, to Hongik Univ. Station in Mapo-gu, Seoul, a 20.0 km section. The total project cost is KRW 2.217 trillion (as of December 2019). It is scheduled to open in 2031, and 12 new stations will be built.
The government expects that when the Daejang-Hongdae Line opens, it will connect Mapo-gu via Bucheon-si, Seoul’s Yangcheon-gu, Gangseo-gu, and Gyeonggi-do’s Goyang-si, contributing greatly to relieving traffic congestion during rush hour in the southwestern part of Seoul and improving transportation convenience for residents of Daejang New Town.
The Daegu Urban Railway Yeongcheon Extension Line is a project to invest 234.1 billion won in Daegu Urban Railway Line 1 to build two new stations on a 5.7km section from Hayang Daegu Catholic University Station in Gyeongsan-si, Gyeongbuk to Geumho Station in Yeongcheon-si. This project is expected to bring about effects such as revitalizing the local economy and creating jobs by connecting the Daegu metropolitan area, Gyeongsan, and Yeongcheon regions into a single living area. The goal is to open in 2030.
● The opening of the railway and road has a great effect on improving the quality of life.
The Ministry of Land, Infrastructure and Transport has set a budget of 67 projects, worth 894.2 billion won, for completion next year. This is significantly higher than this year (56 projects, 496.8 billion won) in terms of number and amount.
The largest category is roads, with 33 cases worth 662.2 billion won. This is followed by R&D (19 cases, 94.6 billion won), industrial complexes (10 cases, 77.2 billion won), railways (4 cases, 57.7 billion won), and logistics and others (1 case, 2.5 billion won).
The completion of a road or railway means the full opening of the relevant project route section, which in turn suggests that the quality of life of the residents in the area can be improved. This relationship is clearly demonstrated by the paper, “The Impact of Commuting Time in Seoul on Commuting Satisfaction and Quality of Life,” published in the latest issue of the quarterly journal “National Land Research” by the Korea Research Institute for Human Settlements.
According to the paper, long commutes not only lead to a lack of time and reduced leisure time, which lowers life satisfaction, but also leads to a decrease in satisfaction with certain life areas, such as family life and leisure time.
This is also confirmed by the impact of road and railway openings on housing prices. In other words, housing prices rise significantly as the quality of life improves due to improved transportation networks. According to data released by real estate platform company Zigbang in June, housing prices in new metropolitan area complexes where subway stations opened in the past five years rose up to 7% more than apartments in nearby areas over the past year.
Among the roads scheduled to open next year, there are two expressways, including the Pohang-Yeongdeok Expressway in Gyeongbuk (KRW 204.3 billion) and the Saemangeum-Jeonju Expressway in Jeollabuk-do (KRW 18.2 billion). In addition, 20 national highways, including the Chuncheon-Hwacheon National Highway in Gangwon-do (KRW 84.6 billion) and the Muge-Samgye National Highway in Gyeongnam (KRW 43.5 billion), four national highway bypass roads, and five nationally supported local roads, have been added to the list of completed projects.
The Pohang-Yeongdeok Expressway is a section of the Donghae Expressway that connects Haeundae, Busan to Sokcho, Gangwon-do. It is a 31.8km section that connects Heunghae-eup, Pohang-si to Ganggu-myeon, Yeongdeok-gun. Construction began in 2016 and is scheduled to open at the end of next year. Many analysts predict that it will take a considerable amount of time to completely open the Donghae Expressway because some sections are not under construction.
The projects scheduled for completion next year include ▲Double-track railway between Dodam and Yeongcheon on the Jungang Line (KRW 9.4 billion), ▲Taehwagang-Songjeong metropolitan railway, an extension of the metropolitan railway running from Bujeon Station in Busan to Taehwagang in Ulsan (KRW 3.3 billion), ▲Daegu metropolitan railway (KRW 8.5 billion), and ▲Capital Area metropolitan express railway (GTX, KRW 36.5 billion).
Among these, the GTX project is drawing attention. An official from the Ministry of Land, Infrastructure and Transport introduced it as “next year’s government budget that will be invested in the GTX-A line between Paju and Seoul Station, which is scheduled to open at the end of this year.” In other words, this means that the budget will be invested in surrounding maintenance projects that are necessary even after the railroad opens.
The entire GTX-A line (82.3km) connecting Paju and Dongtan is expected to open around 2028. The 15km section from Seoul Station to Suseo is also scheduled to open in 2026, excluding Samseong Station, and Samseong Station is scheduled to be completed in 2028.
However, the Korea Railroad Corporation is currently reviewing a plan to only build a transfer passage to allow transfers at Samseong Station before the official opening in 2028. Since the plan is to use Samseong Station temporarily, attention is focused on whether this will come to fruition.
2024-09-08 11:55:27