Monday, 15 August 2011

The Future of Construction in South Korea to 2015

Government stimulus plans, I.T. development, Digital Media City, the World Fair and the 2018 Winter Olympics have spurred growth in the South Korean construction industry leading to a positive outlook for all markets by 2015.

London – August 15, 2011 – Following two years of continuous decline, The South Korean construction industry underwent a period of gradual recovery in late 2009. The global financial crisis, which primarily affected the housing market, led to a decline in construction activity during 2008.

The industry experienced its sharpest decline in 2008, with the number of unsold apartments reaching 161,000 in July 2008, up from 103,000 a decade previously. However, the industry is showing clear signs of recovery as a government stimulus packages and measures to improve the liquidity position of builders gradually began to have an effect on the industry in 2010.

This period of economic recovery coupled with government measures such as a cut in property taxes have lead to a positive outlook for the South Korean construction industry going forward. Furthermore, the country is continuing efforts to move away from its reliance on oil as its core industry and is expected to focus on alternative energy projects, such as solar technology.

The government has played a key role in providing the required impetus to the infrastructure construction market. A reduction in taxes and interest rates for the corporate sector, enabling smaller construction firms to complete larger infrastructure projects, are under progress. For example, in January 2009, the government announced an investment over four years for infrastructure and environmental projects, expected to create 960,000 jobs. In February 2009, the government announced credit guarantees to firms and tax cuts for homeowners which further stimulated growth in the sector. With renewed strength in the economy, the government is eventually expected to gradually withdraw its supportive policies

I.T. Development

In addition to providing schemes and cuts for the infrastructure construction market the South Korean government is undertaking considerable measures to enhance the country’s information technology communications. It has been proposed that by the end of 2012, every home in the country is expected to have a one-gigabit-per-second internet connection, ten times faster than the already impressive national average and more than 200 times faster than the average US household. A pilot project, initiated by the government, is already under way with 5,000 households in five South Korean cities already connected. Furthermore, the project intendeds to significantly increase wireless broadband services to homes going forward.

Digital Media City

South Korea is focused on redeveloping its existing business complexes, promoting tourism and entertainment. Major cities, primarily Seoul and Incheon, have been the centre of such activities. For example, Seoul will create a film and entertainment complex hub by 2014 with the aim of promoting local entertainment business and tourism. The city government will expand Digital Media City (DMC) in Western Seoul to develop a cluster for the film, game and animation industries, with a central emphasis on South Korean pop culture known as ‘Hallyu’.

The construction plan includes building the world’s largest computer graphics centre by 2013.The centre is to have three virtual studios, city-themed movie sets, pre- and post-production facilities and a promotional exhibition hall of famous Korean dramas. A theme park featuring famous game and animation characters will be completed by 2012. For the convenience of visitors, the neighbourhood will turn into an entertainment and commercial district with shopping malls, spas and hotels. Additionally, research centres will move into the complex as part of the project’s aim to strengthen research capabilities in entertainment, information technology and design. All this is anticipated to create 68,000 jobs and propel growth in the commercial construction market over the period 2011–2015.

The World Fair and 2018 Winter Olympics

Several international events are expected to maintain growth in South Korea’s construction activities, the two most significant are the World Fair and the 2018 Winter Olympics. Culturally and economically the World Fair is the third-largest event in the world, only the FIFA World Cup and the Olympic Games are considered to have a greater impact.

South Korea will expedite rail and road construction projects that are already in place to provide the relevant infrastructure for the fair. Furthermore, government infrastructure expenditure is expected to increase over the review period as South Korea are to host the 2018 Winter Olympic Games which further expected to drive government expenditure towards the construction industry.

However, increasing levels of construction activity is expected to place inflationary pressure on the South Korean economy as a result of a gradual rise in commodity prices. To counter this inflationary pressure, it is anticipated that South Korea’s Central Bank will raise interest rates towards the end of 2011. As monetary policies are tightened and fiscal stimulus measures withdrawn, real GDP growth in South Korea will slow to a more sustainable level and average 4.6% over the forecast period.

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