South Korean Builders Push Employees to Buy Unsold Apartments

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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.

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"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.

An office worker at Byucksan Engineering & Construction, Kim Keon-hoon said he was also pushed in 2008 to buy an unsold 800 million won two-bathroom, four-bedroom apartment in the Ilsan suburb outside Seoul as his employer teetered on the edge of bankruptcy.

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Mortgages are commonly taken on by workers to provide cash-strapped companies with liquidity, and interest payments are usually shouldered by the firms.

The purchase has saddled the father of two with debts of 500 million won and monthly interest payments of 3 million won that he cannot repay. Kim and other employees say they were coerced to buy and have taken the company to court.

In South Korea, the practice of pressuring employees to buy their own company's products — as a way of boosting sales and manipulating profits — is a fairly common practice.

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The South Korean business world is dominated by a handful of massive conglomerates. It is a top-heavy economy that gives executives immense power over those at the bottom, a reality that corporate governance activists have complained is unfair and undemocratic.

Retailers, for instance, regularly ask their store managers to purchase items such as makeup and clothing on their credit cards, offsetting poor sales. Suppliers sometimes pressure shops into buying up excess material they never ordered.

Because South Korea's real estate and retail markets are in the middle of a slump, the practice has become more prominent, and has brought controversy to some corporations.

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In early May, South Koreans boycotted a major milk producer, Namyang Dairy, when a company representative was caught on tape using expletives, bullying an elderly shop owner into accepting products he didn't order.

Reuters contributed reporting to this article.