Monday, October 20, 2008

South Korea Economic Woes Affect Guam

Investment slides: South Korea economic woes affect Guam
By Steve Limtiaco
Pacific Daily News
October 21, 2008

The South Korean economy has been struggling -- the value of the Korean won compared to the U.S. dollar has dropped 30 percent this year and the country's main stock index has dropped 38 percent.

Those struggles have had an effect here, where Korean investment is important to real estate development and Korean visitors represent the second largest tourism market.

For Guam residents, Korea's troubles and the pending military buildup could make it more expensive to rent or to buy a home. That's because the island needs thousands of new homes to accommodate the buildup, and foreign investment to build them.

The decline in the won's value also has put a stop to what had been steady gains in Korean tourist arrivals, according to the Guam Visitors Bureau.

According to Pacific Daily News files, Guam needs to build about 5,573 units between now and 2013, or about 1,115 new units per year. That's in addition to homes the military will build for its personnel and their dependents.

By 2014, the military plans to transfer 8,000 U.S. Marines, and their dependents, from Okinawa to a new base in Dededo, increasing the island's population by about 42,000, and creating a housing demand. There also are other projects to expand the military's presence here at the Navy and Air Force installations, and the Army plans to build a ballistic missile defense facility.

The overall cost of the military buildup is expected to be about $20 billion.

Guam relies heavily on foreign investment to develop island real estate.

"The Korean market was probably one of the most importance sources of foreign investment funds in 2007," said Nick Captain, president of the Captain Real Estate Group.

He said the slowdown in the Korean economy has caused an "almost near elimination of foreign investment coming from Korea now."

Koreans in 2007 invested about $1.2 billion in foreign real estate, but are on pace to invest only $600 million this year, according to statistics gathered by Captain.

Captain said the decline in Korean investment will affect some large development projects on Guam as well as the market for land. He said a number of Korean-funded real estate projects here, "have taken a back seat or put on indefinite hold." Captain said he couldn't comment on the specific projects.

Captain last month told the Rotary Club of Tumon Bay that the sale of high-end homes -- those costing $500,000 or more -- has suffered because developers were counting on Koreans to buy them. Only five of those homes sold during the first half of this year, he said, with dozens more on the market but unsold.

Tourist arrivals from Korea had been growing during the past several years, by as much as 5.5 percent per year, said Gerald Perez, general manager of the Guam Visitors Bureau.

Arrivals are now down about 5 percent for the year.

"I can say for sure that the Korean economy, particularly with respect to the won versus the dollar, has played a big impact," Perez said.

The decline in the value of the won means Korean visitors now get less value for their money, he said.

"The problem is the Korean won just within the last month was 950 (to the dollar). Now it's running 1,450 (to the dollar)," Perez said.

Despite the overall decline, Perez said this should be a good month for Korean tourist arrivals -- about 22 percent higher than last October -- because several "incentive" trips are scheduled to happen this month. Those are trips or seminars given as performance rewards.

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