INVESTMENT OPPORTUNITIES IN KOREA REAL ESTATE

Transcription

1 INVESTMENT OPPORTUNITIES IN KOREA REAL ESTATE

2 INVESTMENT OPPORTUNITIES IN KOREA REAL ESTATE KOREA, Where Success Knows No Limits Contents 4 Introduction to the industry Office market Real Estate Fund (REF) Status of REIT in Korea Retail market Hotel market Regional development 22 Government policies Free Economic Zone (FEZ) Real Estate Investment Immigration System for Foreigners Jeju Investment Promotion District Songdo Free Economic Zone Measures to Stimulate the Local Economy 33 Success cases Construction of Incheon Bridge Legoland 35 Related associations and enterprises

3 4 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY Office market 5 Recent issues 1) Lowered key interest rates With current interest rates standing at.2% (25 bp ) and abundant market liquidy, the real estate market is expected to pick up. 2) Foreign capital influx Foreign capital companies, including the State Oil Fund of Azerbaijan (SOFAZ), Abu Dhabi Investment Authority (ADIA), Kohlberg Kravis Roberts (KKR), ARA Asset Management Limited and Blackstone, have entered Korea s office building market. 3) As of 213, the gross floor area of office properties in Seoul was 18 times the size of Yeouido According to the Seoul Institute, the gross floor area of office properties in Seoul as of 213 was 51,55, m2, recording CAGR (compound annual growth rate) of 2.8%, or 1,12, m2, for the past 1 years.1 Most offices are concentrated in Gangnam-gu; large-scale offices sit in Jung-gu. 4) Global real estate investors participation in the bid for Citibank Korea s headquarters2 Global real estate investors participated in the bid for Citibank Korea s headquarters in Dadong, Jung-gu, downtown Seoul. Blackstone - one of the world s largest private equity firms, Alpha Investment Management and ARA, were reported to have participated in the bid, as well as domestic investors including KORAMCO and Mastern Investment Management. INTRODUCTION TO THE INDUSTRY 1 KORAMCO REIT & Trust, 214, KORAMCO Market Review (March, 214) 2 KORAMCO REIT & Trust, 214, KORAMCO Market Review (August, 214)

4 6 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY 7 The office building market of Seoul As of 214, transactions for 32 office buildings (total transaction area: 73, m 2 ) were completed. As of 214, 29 new buildings (total transaction area of 62, m 2 ) were supplied. Status of the office building market in Seoul (214) Cap Rate (%) Vacancy rates (excluding newly built buildings) Prices per Pyeong (Unit: KRW 1,, or USD 8.84)* Rent per Pyeong (Unit: KRW) (Unit: Pyeong (3.3 m 2 )) Management costs per Pyeong (Unit. KRW) Overall Seoul ,67 72,235 31,328 Central Business District (CBD) Yeoido Business Distrcit (YBD) Gangnam Business District (GBD) * Source: Mate Plus * Currency conversion based on March 16, 215 rate ,87 84,599 35, ,391 61,359 29, ,18 75,737 31,496 Landlords continue to provide tenants with temporary rent-free offers. Employment numbers impact the real estate market less than they used to. The supply of new office buildings and relocation of government organizations increased the vacancy rate. Status of Office Buildings in Seoul Transaction volume & price Transaction cost (trillion won) /4Q 3/4Q 2/4Q 1/4Q Transaction cost per m Total trans cost 5.4 tril. won 89% 6, 5, 4, 3, 2, Selling Price (thous. won / m 2 ) Rent price & vacancy rate by region Rent thous. won / m Rent Price per month 22.7 Vacancy rate 8.% % % % % Average CBD GBD YBD Bundang * Source: ShinYoung Asset * Source: KORAMCO Market review, December, 214 Average vacancy rate in Seoul CAP rate trend in Seoul (Unit: %) (Unit: %) Spread Seoul Cap. rate Government Bond (5 years) Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q. 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q * Source: Kyobo Realco, 214 * Source: Genstar % 12% 8% 4% % Vacancy rate Cases of foreign capital buying office buildings in Seoul The influx of foreign capital into the office building market in Seoul as of September 214 was about KRW 1.3 trillion. Funds invested in the Korean office market for the second quarter of 214 amounted to KRW trillion, 7% of which was foreign capital. This was the first time foreign investment in the Seoul office market exceeded KRW 1 trillion since 211. Investors in the Seoul office market include SOFAZ, a sovereign wealth fund in the Azerbaijani Republic, KKR, a U.S. private equity fund, LIM Adviser, a Hong Kong investment company, and GAW Capital Partners, a Hong Kong private equity fund. Recognized as the world s third sovereign wealth fund, ADIA in the UAE is taking steps to buy out State Tower Namsan (gross area of 66,799 m 2 ), located in Hoehyun-dong, Seoul. Shinhan BNP Paribas Asset Management Co., Ltd., which owns the tower, selected in early August ADIA as the first acquisition negotiation candidate; the tower was priced at KRW million per 3.3 m 2 and KRW 53 billion for the entire property.

5 8 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY 9 Foreign capital invested in office buildings in Seoul trillion 928 bn 8 bn trillion (Unit: KRW) Real Estate Fund (REF) Changes in the real estate fund market Korea s first REF was launched by Mirae Asset Investments Group (total net asset: KRW 45 billion) on June 4, 24. Thereafter, the fund continued to increase to 538 funds as of the end of June, 214, which is 3 times the number of real estate investment trusts (REIT) adopted in 22. Total net assets have also continuously increased (~August) * Source: Cushman&Wakefield, quoted from an article in Hankyung Business, September 14, 214 Sales of large office buildings through foreign capital in 214 Status of REFs by year 7 Total No. of Real Estate Funds 6 Increased units 5 66 (As of June 27, 214) Building Location Floor area (m 2 ) Fine Avenue block A The-K Twin Tower Dongja District 8 State Tower Namsan Euljiro 2ga, Jung-gu Junghak-dong, Jongro-gu Dongja-dong, Yongsan-gu Toegyero, Jung-gu Selling price (KRW bn) Underwriter (investor) 65, SOFAZ 83, , , * Source: Kyobo Reality, IB Industry, quoted from a Money Today article dated September 1, 214 Limited to: Area of 33, m 2 or more Future outlook Vestas Investment Management (KKR, RIM Advisers) KB Real Estate Trust (GAW Capital) ADIA (selected as the first negotiation candidate) Global enterprises have already invested actively in the office market in Seoul, and related policies are in place as well. However, there is a need for detailed market information from reputable institutions. The Ministry of Land, Infrastructure and Transport (MOLIT) also offers such information, but this should be accompanied by the task of providing more specific information about properties favored by foreign investors. An increase in the vacancy rate is expected in the first half of 215 due to a decrease in employment numbers. Landlords are expected to continue with temporary rent-free offers for tenants. There will be 11 new office buildings in Seoul in Status of net assets by year 3, 25, 2, 15, 1, 5, - Total net asset Increased asset 25,725 26,686 18,3 28,849 15,86 141,313 17, ,588 88,92 8,631 7,62 41,753 8,631 25,947 (As of June 27, 214, Unit: KRW 1 million) 18,232 42,472 34,718 22,981 26, , ,12 164, * Source: Korea Financial Investment Association (KOFIA), KAREIT Report (summer edition, 214)

6 1 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY 11 Current status of REF in Korea REF trends Types of investment As of November, 214, the REF market reached KRW 28.1 trillion, or 584 REFs in total. 3 The Revised Special Local Tax Treatment Control Law abolished existing tax benefits. Status of REFs (As of November, 214) Status KRW 1 million 18, 15, 12, 9, 6, 24 Established amount No. of fund formation Unit FoF, 28 (18%) etc., 5 (3%) Real property, 53 (35%) Established funds Total net assets Invested area Total 68 units, KRW trillion KRW trillion (1% of established fund) Overseas 144 units, KRW 8.36 trillion (28%) Domestic 464 units, KRW trillion (72%) 3, 9,559 1Q 13,648 11,21 15,15 7,11 15,98 14,855 13,291 2Q 3Q 4Q 1Q 2Q 3Q 4Q Q4 of 214 is based on data as of November 3. 1 Bond fund, 52 (34%) PF Loan, 15 (1%) Public offering 21 units, KRW 1.18 trillion (4%) Capital raise Private offering 587 units, KRW trillion (96%) * Source: KORAMCO Market Review, January, 215 Investment targets (January - November, 214) As of 214, 153 funds were newly formed; 29 funds in 1Q, 49 in 2Q, 37 in 3Q and 28 in 4Q. The amount of capital committed to the formed funds reached KRW 5.11 trillion, showing a 28% year-on-year increase. As for investment targets, the office investment fund accounted for 42%, along with the emergence of various investment forms, including global funds and REIT fund of funds (FoF). KRW 1 mil 25, 2, 15, 1, 5, 12 Established amount Established units 4 13 ABCP ABSTB MBS NPL PDF Public Sale Property Global Fund / REITs Data Center Loan Bond Complex Facility Logistics Commercial Office Laboratory Housing Intellectual Industry Center Overseas Real Estate Hotel Etc Units * Source: Kyobo Realco, 214 REF market outlook for 215 As the domestic REF market does not guarantee high returns, indirect investment in foreign REFs is expected to rise. The termination of tax benefits on REFs is likely to reduce the number of investors and the size of established capital. 3 KORAMCO Market Review (December, 214)

7 12 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY 13 Status of REIT in Korea Status of REIT in Korea From 29 to 211, the number of business licenses increased, particularly for externally managed REIT. License applications for internally managed REIT are on the decline. However, the Revised Real Estate Investment Company acts eased the existing restrictions on the establishment of REIT and thus increased the number of internally managed REIT. The government passed a bill that grants tax benefits to a purchaser of an unsold apartment in order to revitalize the construction market and resolve issues regarding apartments that are unsold after construction. The revision increased the number of licenses for company restructuring REIT (CR REIT.) Due to a number of licensed REIT being dissolved from 212 to 213, the number of licenses for REIT had been at a standstill after rising in 29 but recorded an upturn starting in 213. Increases in REIT Units Net increase 6 Existing REIT Chronological statistics on REIT asset size (Unit: KRW 1 million) 14, 12, Net increase Existing REIT 117, ,388 1, 95,291 8, 82,38 76,312 69,891 59,156 6, 49,819 54,2 48,724 39,976 41,996 4, 33,296 36,597 23,926 27,743 2, 11,46 14,369 17,439 5,584 7,64 8,14 1,85 1,463 6,512 3, * Source: Korea Financial Investment Association (KOFIA), KAREIT Report (summer edition, 214) Current status of Korean REIT As of November, 214, there were 96 REIT (KRW 12.4 trillion) in total. There was a notable increase in lease-housing REIT. MOLIT is promoting the introduction of the demand-supply control lease REIT in order to boost private businesses. Investment in office properties accounted for the largest share of the total investment, at 63%. Status of REIT (As of the end of November, 214) Status Note Total amount of assets being managed KRW trillion 96 REIT in total Average amount of assets KRW billion Excluding companies with assets below KRW 5 billion Dominant type Externally managed REIT 54 externally managed REIT Listed REIT 18 companies 11 companies have been dissolved or de-listed. * Source: KORAMCO Market Review, December, 214 Investment targets etc. 14% Housing 7% Retail 16% Office 63% * Source: KORAMCO Market review, December, 214 Types of REIT CR-REITs 37% Internally managed REIT 4% Externally managed REIT 59% As of 214, 25 REIT were newly established: 6 REIT in Q1, 4 in Q2, 8 in Q3 and 7 in Q4. Compared to the previous year, the number of licenses for REIT increased 56%. Of the newly established REIT, externally managed REIT is the most dominant type, accounting for 76%, while housing took the biggest share of the investment areas, at 36%.

8 14 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY 15 Status of REIT by type Externally managed REIT, 5 (2%) Internally managed REIT, 1 (4%) CR-REITs, 19 (76%) * Source: Kyobo Realco, December, 214 REIT market outlook for 215 (January to November) Status of REIT by investment target Commercial, 6 (24%) Office, 7 (28%) Retail, 1 (4%) Hotel, 2 (8%) Housing, 9 (36%) (January to November) Considering the economic size of Korea, the REIT market is relatively small. Moreover, due to a lack of available direct investment real estate products, the government plans to expand the REIT market. In the mid- and long-term, tax code reforms are expected to adopt tax deferral plans. More REIT choose to target housing properties due to government policies. The government plans to continue with its current acquisition tax reduction on public lease REIT only. Due to a lack of blue-chip products in the domestic market, domestic REIT providers are expected to develop overseas REIT projects. Retail market Current issues 1) Market trend: Increased single- and two-member households resulted in the growth of convenience stores and non-store retail businesses. 4 According to Statistics Korea, the number of single- and two-member households in 21 exceed that of three- and four-member households. Single- and 2-member households are expected to increase continuously until 235 to account for 68% of all households. As of 212, the sales growth rates of convenience stores and non-store retailing recorded 13.4% and 9.8%, respectively, which is much higher than the growth rates of department stores (1.8%) and large shopping malls (2.%). 2) According to Real Estate 114, stores sold in lots increased 36% in the first half of 214 year-on-year. In particular, the rural areas around Sejong, Busan and Daegu have recorded the largest supply numbers. 3) Retail sales in the first half of 214 increased 2.3% year-on-year. During the same period, retail sales of department stores fell.3%, to KRW 14.6 trillion; in contrast, large shopping malls recorded a 5.% improvement, with KRW 22.8 trillion. 5 Status of retail market Retail sales increased from KRW trillion in 211 to KRW trillion in 213. The growth rates of the retail distribution sector and the large shopping malls are expected to be 2.4% and 3.8%, respectively. Unit: trillion Sales Growth rate % * Source: : Korea Statistics * Source: : Expert forecasts (E: Estimated, F: Forecast) * Based on net retail sales, excluding fuel expenses. 4 Savills Korea, Savills Seoul Retail Market KORAMCO Market Review (August, 214)

9 16 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY 17 Outlets 1) Lotte Lotte opened its first outlet, Lotte Outlets Gwangju World Cup, in 28. As of the end of 214, the company operates 14 outlets. As of 213, the company s outlet sales recorded KRW 1.5 trillion, a 19.5% increase year-on-year. 2) Shinsegae-Simon Shinsegae-Simon opened its first outlet, Yeoju Premium Outlets, in 27. The company plans to operate eight outlets by 22. Targeting premium outlets, Simon Property Group and Shinsegae created a joint-venture corporation, Shinsegae-Simon, with each taking a 5% stake in the venture. 3) Hyundai Annual sales of KRW 25 billion are expected for the company s Kimpo outlet, which is scheduled to open in 215; KRW 73 billion for the Pangyo outlet and KRW 12 billion for Garden Five. 4) E-Land The company operates 51 outlets in total: NC outlets (15), 21 Outlets (8), New Core Outlets (19), Donga Outlets (6) and Premium Outlets (3). The company has secured its competitiveness by making the most of its fashion and distribution business. Large discount stores 1) Lotte As of 213, Lotte operates 15 Lotte Marts and 4 VIC Markets. The company recorded KRW 9.21 trillion in sales and KRW 233 billion in operating profits in ) Costco Korea Costco Korea opened its first branch in Yangpyeong-dong, Seoul, in As of 214, the company operates 11 branches. 3) Homeplus Homeplus operates 14 large discount stores, 37 super supermarkets (SSM) and 22 convenience stores. As of 214, the company s annual sales reached KRW 11 trillion. 4) e-mart The company opened its first branch in Chang-dong, Seoul, in The company operates 148 branches as of 214. As of 213, the company recorded KRW 1.78 trillion in sales. Domestic outlet market size and growth rates 1, 8, Market size Growth rate (%) KRW 1 billion 6, 4, 2, * Source: Samsung Design Net

10 18 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY 19 Complex shopping malls 1) Times Square The company recorded KRW 93.5 billion in sales and KRW 37.2 billion in operating profits as of 213. The shopping mall accommodates a multiplex cinema, a hotel, shopping malls, restaurants and cultural facilities. 2) Coex Mall Despite a partial closing of the mall due to major renovations, the mall recorded KRW billion in sales and KRW 31.3 billion in operating profits. The mall accommodates a hotel, five plazas, shopping malls, restaurants and cultural facilities. 3) Hanam Union Square Taubman Asia (USA) and Shinsegae Group jointly invested, with each taking 49% and 51% of the stakes, respectively. The Square will be the largest shopping mall in Korea s metropolitan area, with total investment of KRW 1 trillion and gross area of 33, m 2. Major complex malls in the metropolitan area In operation Scheduled to open Times Square Location: Yeongdeungpo Gross area: 313,719 m 2 Opened in Sept., 29 Lotte Mall Gimpo Airport Location: Gangseo Gross area: 313,719 m 2 Opened in Dec., 211 Gangseo Mapo Aekyung Town Location: Mapo Guro D-Cube City Location: Guro Gross area: 35,413 m 2 Opened in Sept., 211 Seodaemun Mapo Seoul Yongsan I Park Mall Location: Yongsan Gross area: 264,462 m 2 Opened in Aug., 26 Jungnang Jongno Dongdaemun Jung Seongdong Gwangjin Yongsan Yeongdeungpo Gangnam Dongjak Seocho Gwanak IFC Seoul Location: Yeouido Gross area: 89,256 m 2 Opened in Aug., 212 Garden 5 Location: Songpa Gross area: 429,752 m 2 Opened in Jun., 29 Dobong Nowon Shinsegae Complex Mall Location: Cheongna, Incheon Lotte Shopping Town Location: Songdo, Incheon To open in H2, 217 Lotte World Mall Location: Jamsil Gross area: 429,752 m 2 Opened in Oct., 214 Songpa Coex Mall Location: Gangnam Gross area: 155,371 m 2 Opened in June, 2 (Renovation open: Nov., 214) Parnas Mall Location: Gangnam Gross area: 5,289 m 2 Opened in Aug., 26 Incheon Seven Festa Location: Paju, Gyeonggi To open in 217 Paju Yangju Goyang Hanam Seongnam Gwangju Suwon Yongin Icheon Hwaseong Osan Anseong Penta Village Location: Osan, Gyeonggi To open in 217 Suwon AK Plaza Location: Suwon, Gyeonggi Gross area: 26,446 m 2 Opened in Dec., 214 Suwon Lotte Mall Location: Suwon, Gyeonggi Gross area: 234,71 m 2 Opened in Nov., 214 Namyangju Incheon, Gyeonggi Gapyeong Shinsegae Complex Mall Location: Hanam, Gyeonggi To open in 218 Yangpyeong Shinsegae Complex Mall Location: Goyang, Gyeonggi Alphadom City Location: Pangyo, Gyeonggi Avenue France Location: Pangyo, Gyeonggi Gross area: 27,438 m 2 Opened in May, 214 Hotel market Recent issues 1) Continuous increase in foreign visitors since 27 The number of foreigners visiting Korea hit a record high in 213, standing at million, which is twice the number in ) In 213, the number of Chinese tourists exceeded that of Japanese tourists for the first time. While visitors from Japan decreased 22% year-on-year due to a weak yen and the aggravation of Korea-Japan relations, visitors from China increased 52.5% compared to the previous year. 7 3) In terms of site preference, areas in Seoul were the most popular, with 8%; as for accommodations, most visitors used hotels. A survey on the status of foreign tourists conducted by the Ministry of Culture, Sports and Tourism showed that 8.9% of all travelers visited areas in Seoul as of 213. As of 213, 73.5% of foreign tourists used hotels, similar to the previous year (73.4%). Status of hotels in Seoul 1) As of December 213, hotels in Seoul numbered 177 (28,468 rooms), an 11% year-on-year increase. 2) As of December 213, the proportions of each grade of hotels in Seoul were 38% 6-star and 24% 4-star; these accounted for 62% of all hotels in Seoul, showing that most hotels in Seoul are upscale. Proportions of each grade of hotels in Seoul etc. 25% 3-star 14% 4-star 24% * Source: Savills Korea Research & Consulting Team, Korea Culture and Tourism Institute, quoted from Savills Spotlight Seoul s Hotel Market in Q1, 214 Other: Inclusive of 2-star, 1-star and unrated rooms 5-star 38% * Source: MK Economy number 1787, December 22, Savills Korea, 214, Savills Spotlight Seoul s Hotel Market in H1 of Savills Korea, 214, Savills Spotlight Seoul s Hotel Market in H1 of 214

11 2 REAL ESTATE 1 INTRODUCTION TO THE INDUSTRY 21 3) Increased room rates and occupancy rates due to undersupply of rooms The rising accommodation demand of foreign visitors is aggravating the short supply of hotels in Seoul. Average occupancy rates for each grade of hotels stood at about 78-84%; the occupancy rate for 3-star hotels was the highest, at 84% and 4-star hotels that offer reasonable room rates were most preferred. 4) Booming business hotels tailored to the needs of foreign visitors Although business hotels offer fewer leisure facilities compared to 3-star or 4-star hotels, the reasonable room rates of business hotels attract tourists from China and Southeast Asia. For hotel developers or investors, business hotels are advantageous because they are small, incur lower construction costs and require shorter construction time; hence the relatively low initial cost of investment. Supply of major business hotels in Seoul Hotel District Start of service No. of rooms Shilla Stay Lotte City Westin Chosun s business hotel Nine Tree Yeoksam-dong, Gangnam-gu Miguen-dong, Seodaemun-gu Dohwa-dong, Mapo-gu Sindaebang-dong, Dongjak-gu Susong-dong, Jongno-gu Seocho-dong, Seocho-gu Gongdeok-dong, Mapo-gu Gimpo Airport Guro-dong, Guro-gu Chungmu-ro, Jung-gu Janggyo, Jung-gu Donggyo-dong, Mapo-gu N/A N/A Dongja-dong, Yongsan-gu Myeong-dong, Jung-gu Myeong-dong, Jung-gu * Source: Savills Korea Research & Consulting Team, Korea Culture and Tourism Institute, quoted from Savills Spotlight Seoul s Hotel Market in the 1st Half of N/A Regional development Future development approaches and plans The Korean government s efforts to expand hotel supply have led to a drastic increase in related licenses and permissions. Note, however, that regulations on hotels are still regarded as strict, including restrictions on the presence of hotels in elementary school zones. To tackle this issue, the government is working on measures to ease regulations. Investment in regional development may guarantee returns from a long-term perspective. Songdo International Business District (IBD) Project 1) Developers In 22, Gale, a U.S. real estate developer, and POSCO Engineering & Construction established a joint venture called New Songdo International City Development LLC (NSIC), with each taking 7% and 3% of the stakes, respectively. Songdo is a free economic zone that requires a minimum investment of USD 1 billion. The NSIC attracted investment of USD 12.7 billion. 2) Project details The project period was set to The gross area of the IBD will be 5,719,8 m 2, which is double the area of Yeouido. Convention Center, international schools, international hospitals, commercial and business facilities, apartments, golf courses, culture centers, etc. Future development approaches and plans There has been an active effort to attract investment, especially in free economic zones and now other areas involving large development projects as well. A variety of investment attraction activities are being carried out, but the government may need to expand incentives regarding locational restrictions and land price markdowns. The government is taking measures to ease regulations. 8 Savills Korea, 214, Savills Spotlight Seoul s Hotel Market in H1, 214

12 22 REAL ESTATE 2 GOVERNMENT POLICIES 23 Free Economic Zone (FEZ) 9 Status of designation A total of eight regions were designated as FEZs: The first three (23: Incheon, Busan / Jinhae, Gwangyang Bay); the second three (28: Yellow Sea, Daegu / North Gyeongsang Province, Saemangeum / Gunsan); and the third two (213: North Chungcheong Province, East Sea). Status of designation of Free Economic Zones (As of August 214) Region Incheon Busan / Jinhae Gwangyang Bay Yellow Sea Location Incheon (Yeonsu-gu / Jung-gu / Seo-gu) Busan (Gangseo-gu), South Gyeongsang Province (Changwon-si) South Jeolla Province (Yeosu / Suncheon / Gwangyang) South Gyeongsang Province (Hadong-gun) Gyeonggi (Pyeongtaek) Area km km km km 2 Designation date Airports / Harbors Basic purpose ( ) Incheon Airport, Incheon Port Aero logistics Bio Knowledge service ( ) Gimhae Airport, Busan New Port Complex logistics Advanced transport, machinery parts Leisure, recreation ( ) Gwangyang Port, Yeosu Airport Petrochemical materials Steel-related industries Port logistics ( ) Pyeongtaek Port, Dangjin Port Auto electric parts IT-related parts / materials Region Daegu / Gyeongbuk Saemangeum / Gunsan Donghaean Chungbuk Location Daegu, North Gyeongsang Province (Gyeongsan, Yeongcheon, Pohang) North Jeolla Province (Gunsan, Buan) Gangwon Province (Gangneung, East Sea) Area 22.1 km km km km 2 North Chungcheong Province (Cheongwon, Chungju) Designation date ( ) ( ) ( ) ( ) Airports / Harbors Daegu International Airport Gunsan Port, Saemangeum New Port Yangyang International Airport, Donghae Port Cheongju International Airport GOVERNMENT POLICIES Basic purpose IT convergence Advanced transport machinery parts Advanced medical * Source: Website of the FEZ Planning Office Auto / machinery parts Metal, new materials New & renewable Port logistics energies Tourism, leisure Maritime leisure, tourism Bio NEWIT Transportationrelated parts 9 A special economic zone to actively secure foreign investment by guaranteeing maximum autonomy in business activities through diverse forms of deregulation and improvements to the business and life environment. The zone offers various tax benefits, a convenient living environment and administrative services.

13 24 REAL ESTATE 2 GOVERNMENT POLICIES 25 Free Economic Zone occupancy eligibility Foreigners Foreign-invested companies Operators of facilities for improving the foreign investment environment * Source: Website of the FEZ Planning Office Incentives 1 Any individual of foreign nationality Any corporate body established under foreign laws Any international economic cooperative institution Any corporation or non-profit entity funded through foreign investment Schools or medical institutions for foreigners, business foundation support facilities for foreigners, etc. Any operator of a facility that improves the foreign investment environment 1) Tax exemption According to the Restriction of Tax Reduction and Exemption Act, foreign investors are eligible for tax reduction or exemption for corporate and income taxes on corporate income, dividend income, earned income, returns on tech adoption, etc., as well as for acquisition and property taxes. National tax (income / corporate tax): 1% for 3 years, 5% for 2 years after income creation Tariff exemption: 1% for 5 years on imported capital goods Local tax (acquisition / property tax): 1% for 3 years, 5% for 2 years The period and scope can be expanded through an ordinance enacted by local governments. Tax benefits are also offered to foreign workers and officials; the scope includes employees in a Korean branch of a foreign corporation. Tax benefits are applied such that the more advantageous one is selected between a 3% discount on the total wage and a single tariff of 17%. 2) Easing of various regulations and burdens No obligation to hire preferentially the employment-protected, including those with disabilities, patriots, veterans and the elderly Small- and medium-sized companies are supposed to be allowed more discretion in business activities. No restrictions intended to control overpopulation in metropolitan areas No regulations applied, such as paid holidays for workers and paid menstrual leave for female workers Worker dispatch services expanded, with periods being extendable (limited to business lines approved by the FEZ Council) The lease period is 5 years for state or public properties where a permanent structure can be built. Allowed to acquire or own stocks of an FEZ occupant 1 Quoted from the website of the FEZ Planning Office ( Real Estate Investment Immigration System for Foreigners 11 3) Finance and infrastructure support Financial support from local governments is available for land development and facility establishment including subsidies for lease commissions. Financial support offered for the construction of a factory or research center. Establishment or expansion of a production facility (operation) involving investment of USD 1 million or more; establishment or expansion of a research facility employing 1 or more regular research workers. For national or public properties, exemption from rent, use / permission on earning, or loan / sale by private contracts allowed. The central or local government covers all or part of the cost of infrastructure construction, such as roads, airports, ports and parks. Implementing areas and status Six areas around Jeju Province; Pyeongchang Alpensia Resort in Gangwon Province; Yeosu, South Jeolla Province; Incheon Free Economic Zone; Haeundae, Busan; East Busan Tourist Complex Previously, the investment scope was limited to recreational accommodation, including resorts, pensions and villas. Later, however, the notification from the Ministry of Justice included general lodging and residential facilities, according to the Enforcement Decree of the Building Act. (As for Incheon, the Act also includes, as an investment item, any house with first-come-first-served basis pre-sale, according to Article 1.6 of the Rules on Housing Supply, provided such housing meets the requirements as of September 3, 214 and until September 3, 215.) Status of Korea s Real Estate Investment Immigration System Region Year / month of enforcement Min. investment Jeju Province February, 21 KRW 5 million For (as of the end of September 214) Alpensia, Gangwon February, 211 KRW 5 million Resorts, pensions, villas and other - Province recreational accommodation Yeosu, South Jeolla facilities and general lodging and August, 211 KRW 5 million residential facilities within the - Province development area Incheon January, 211 KRW 7 million As for Incheon, unsold houses are - Haeundae, Busan May, 213 KRW 7 million also included. - East Busan Tourist Resort May, 213 KRW 5 million - * Source: Announcement of the Ministry of Justice, quoted from the KDI Real Estate Market Trend Analysis - 2 nd quarter of 214 Achievements (as of the end of Feb., 213) 562 cases, KRW billion 11 Any foreigner who has made an investment by complying with the requirements with regard to investment regions, objects, amount, etc., specified by the Minister of Justice can obtain a residence visa. This system seeks to grant permanent residency status (F-5) for a person who has stayed in Korea for 5 or more years and who is recognized by the Minister of Justice to have the ability to make a living and basic aptitude.

14 26 REAL ESTATE 2 GOVERNMENT POLICIES 27 Regional case: Jeju Province As of the last quarter of 213, the percentage of Chinese who own land property within Jeju Province was 46.6%; this was much higher than that of Americans (9.5%) and Japanese (7.8%). The Korean government has been easing relevant regulations for domestic and foreign travelers, including those related to visa waivers for Chinese travelers, permission for Korean citizens to make purchases at duty-free shops and the foundation and operation of international schools. Foreign investment cases through the Real Estate Investment Immigration System in Jeju Province increased by a whopping 9%, from 285 cases (KRW billion) in September of 212 to 562 cases (KRW billion) in December of 213. In terms of amount, foreign investment posted 91% growth. Status of foreign land ownership in Jeju-do 1 million m Ownership of land by nationality (As of Q4, 213) (%) Gross area Amount 46.6 Amount Proportion KRW 1 billion KRW 1 billion China USA Japan The values of ownership in the left graph are based on official price. * Source: Ministry of Land, Infrastructure and Transport statistics; Jeju Special Self-Governing Province, KDI quoted from the KDI Real Estate Market Trend Analysis - 2 nd quarter of 214 Jeju Investment Promotion District 12 Requirements for designation 1) Eligible business lines: 24 Tourist hotel, marine tourism hotel, Korean traditional hotel, all-in-one / recreation-specializing resorts (except for golf course), ferry, performance venue, amusement park, international conference facility, tourism restaurant; culture-related industries, welfare facility for the elderly, youth training facility, cable cars and track business, electricity-generation business utilizing new renewable energy, foreign educational institution, self-governing educational institution, international high school, medical institution (excluding clinics, oriental medicine clinics, dental clinics and maternity clinics), educational center (training institute), industry utilizing advanced technology (limited to electricity, electronics, IT, new material and bio-science), health and medical industry, food and beverage production (limited to facilities built within the water industrial cluster) Guidelines in August, 214 excluded leisure condominium facilities, casinos and bonded stores that were included in the all-in-one / recreation-specializing resort plans, as well as facilities defined in Article 2 of the Museum and Art Gallery Support Act. Article 2 (Definitions) The terms used in this Act shall be defined as follows. <Amended on July 27, 27 and March 5, 29> 1. The term museum means a facility established for the collection, management, preservation, surveying, research, exhibition of, and education on material related to history, archaeology, human race, folklore, arts, fauna and flora, minerals, science, technology, industries, etc. in order to contribute to the development of culture, arts, and learning and the enhancement of the general public s enjoyment of culture; 2. The term art gallery means a facility established for the collection, management, preservation, surveying, research, exhibition of, and education on material related to arts, such as paintings, calligraphic works, sculptures, handicraft, architectural works, and photographs, among museums, in order to contribute to the development of culture and arts and the enhancement of the general public s enjoyment of culture; 3. The term museum material means material that meets the standards prescribed by Presidential Decree, among material with a scientific or artistic value as evidential material, tangible or intangible, of human race and environment in relation to history, archaeology, human race, folklore, arts, fauna and flora, minerals, science, technology, industries, etc., which has been collected, managed, preserved, surveyed, researched, or exhibited in a museum; 4. The term art gallery material means material with a scientific or artistic value, among material related to arts, which has been collected, managed, preserved, surveyed, researched, or exhibited in an art gallery. 2) Min. investment: USD 5 million for both Korean and foreign investors 12 A district that offers special tax benefits (e.g., exemption from national and local tax and fees, free use of national / public properties, etc.) for any domestic or foreign capital of USD 5 million or more that is invested in the district to promote core industries and attract investments in Jeju Special Self-Governing Province, an international free economic city

15 28 REAL ESTATE 2 GOVERNMENT POLICIES 29 Songdo Free Economic Zone Incentives: Exemption from taxes and levies 13 Exemption from corporate / income tax: Corporate tenants (Exemption for 3 years, 5% for 2 years), developers and project owners (5% for 3 years, 25% for 2 years) Tariffs: Waived for imported capital goods for the first 3 years Local tax (acquisition and registration / license tax): 1% exemption from acquisition / registration / license tax, 1% exemption from property tax for 1 years Development charges; Fees for use of public waters: 1% exempted Alternative forest development costs, soil and water preservation charges, alternative grassland development costs and certain sewage-related costs: 5% exempted State- and public-owned land properties are available for lease for up to 5 years and renewal; the rent can be discounted by up to 75%. Status of foreign investment (As of October, 214) Items FDI amount declared 14 (USD 1 million) Songdo Development projects 358 Service 1,476 Corporate tenants 1,45 Schools / Institutes 2 Sum 3,34 * Source: Incheon Free Economic Zone Authority, 214, Progress of Investment Promotion Projects Types of foreign investment Direct investments available for foreigners include independent and joint investment (acquisition of both new and old stocks). FDI can be made in various forms in accordance with the Foreign Investment Promotion Act and the Special Act on Designation and Management of Free Economic Zones, including direct investment in new production facilities, operation of development projects and introduction of equity-invested capital goods. Joint investment with Korean enterprises is allowed. Preferred areas Manufacturing: Advanced industrial sectors such as IT or BT; R&D or tech adoption / transfer projects; installation of regional headquarters, etc. Development projects: Logistics facilities; tourism / leisure business; financial / international business; business to improve the living environment for foreigners, such as schools and hospitals for foreigners Incentives Key incentives for the Songdo (Incheon) Free Economic Zone Tax exemption Support for arrangement Incentives Tariff National tax (Corporate / income) Lease Discount on rent Details [1% for 5 years] Imported capital goods [1% for 3 years, 5% for 2 years] Manufacturing business (USD 1 million or more) Tourism business (USD 1 million or more) Projects / information / creative arts / service business (USD 1 million or more) Logistics business (USD 5 million or more) R&D (USD 1 million or more plus regular employment of 1 or more research workers with master s degree or higher) Developers (USD 3 million or more / total project cost of USD 5 million or more with foreign investment of 5% or higher) [1% exemption for 5 years; 5% rebate for 2 years; for projects deliberated on and resolved by the FEZ Council] Manufacturing (USD 3 million or more) Tourism (USD 2 million or more) Logistics (USD 1 million or more) R&D (USD 2 million or more and regular employment of 1 or more research workers with master s degree or higher) Lease available for state- and publicly owned sites for up to 5 years; rent is calculated by multiplying a 1/1, or higher rate by the land value [1%] Project worth USD 1 million or more and involving advanced technologies Foreign investment of USD 2 million or more Average of 3 or more daily employees Business wherein at least 5% of the entire volume of production is exported and which uses parts and materials that are 1% made in Korea Business wherein all products are exported [75%] Foreign investment of USD 1 million to USD 2 million Average of 2 to 3 daily employees Business wherein 5% or more of the entire volume of production is exported and which uses parts and materials that are 75-1% made in Korea Business wherein 75-1% of all products are exported [5%] Foreign investment of USD 5 million to USD 1 million Average of 1 to 2 daily employees Business wherein 5% or more of the entire volume of production is exported and which uses parts and materials that are 5-1% made in Korea Business wherein 5-75% of all products are exported Disposal (National / Public properties) Available through sell-off of project cost or private contract 13 Invest Jeju KOREA s website ( 14 Foreign direct investment (FDI) amount declared: Amount of foreign direct investment declared in banks, KOTRA, etc.

16 3 REAL ESTATE 2 GOVERNMENT POLICIES 31 Subsidies (for 3% or higher foreign investments) Incentives Sites Facilities Education / Training Employment Reward for attracting investments Business relocation Funding Support for infrastructure Administrative support Details * Source: Website of the Incheon Free Economic Zone Authority Investment Immigration System Subsidies provided only for the difference between the normal selling price and others, such as the contract selling price Subsidies must not exceed 5% of the normal selling price. The services specified in the Business Plan must be maintained for at least 1 years. Each company is granted subsidies of up to 2% of the total cost of introducing or expanding a facility or up to KRW 2 million, provided that such cost exceeds KRW 3 billion. Up to KRW 5, for each employee for up to 6 months if 2 or more new employees are hired Subsidies cannot exceed KRW 2 million per company. Applied to a newly established foreign-invested company Up to KRW 5, each month for each employee if the number of newly created jobs for regular employment exceeds 2 Granted also to a new employee hired within 5 years of the start of business Applied to a public official in charge or a person who has signed a business contract Limited to completed foreign investment, including declaration and payment for objects of investment Deliberation and decision of an FDI promotion council with regard to annual performance in investment promotion Previous year s sales of KRW 4 billion or more (KRW 1 billion or more for logistics or knowledge-based business); Up to KRW 3, for each employee hired by the headquarters or a research center when the company s regular employment exceeds 2 (total subsidy per company limited to KRW 3 million) For a logistics or knowledge-based industry, up to 3% of the cost of buying a building or the annual rent (total subsidy per company limited to KRW 2 million) Provided at a level equivalent to that of Korean enterprises Provided (in whole or in part) preferentially to infrastructures within FEZ using national funds An ombudsman system to offer one-stop support for the administration and management of a foreign-invested company as well as grievance resolution Branches of commercial arbitration corporations to resolve commercial disputes and establish good international trade practices Songdo s Investment Immigration system requires minimum investment of KRW 7 million. The investment area list includes dwelling facilities for recreation, common and other accommodations, such as resorts, pensions and villas, as well as unsold apartments, unlike in other regions. Measures to Stimulate the Local Economy Reasonable regulations for areas where green-belt restrictions have been lifted 15 The Korean government decided to ease zoning restrictions, the obligation to build rental houses and the burden of creating green fields in parks, aiming to expand opportunities for the private sector temporarily until 215 in developing such areas where green-belt restrictions have been lifted. (Zoning restrictions eased) Specific types of commercial facilities or factories may be set up in a region close to the downtown area or which has demand for land other than residential-use land, since such a region can be developed into a pseudo-industrial or neighborhood commercial district. (Individual burdens eased) If a site to accommodate rental houses is not sold within 6 months of the announcement of such sale, the purpose of the site can be changed to that for houses for installment sale (limited to a scale smaller than national housing); the scope of green areas and parks to be created in an industrial complex includes rivers, reservoirs and sloping greens in addition to previous urban parks. (Expansion of private sector participation) The Korean government decided to ease the limit on the private sector s investment ratio in a special-purpose corporation established to develop an area where green-belt restrictions have been temporarily lifted from the current less than 1/2 to less than 2/3 until 215 and to allow the private sector s commissioned construction of an industrial or a logistics complex in such areas. Regulations eased with regard to housing resale period / mandatory stay period for houses in public housing sites in capital areas where green-belt restrictions have been lifted 16 Applied to public houses in public housing sites where more than 5% of the area is developed due to lifted green belt restrictions - The house resale period restriction for public housing (formerly called nest ) has been eased from the current 8 / 6 / 4 years to 6 / 5 / 4 years, and from 5 / 3 / 2 years to 3 / 2 / 1 years for non-public houses. - The mandatory staying period for public houses has been adjusted from the current 5 / 3 / 1 years to 3 / 2 / 1 years ( year for a case in which the ratio between the initial price and market price exceeds 1%.). These new regulations are applied not only to new houses for installment sale but retroactively to houses already sold as well. 15 Ministry of Land, Infrastructure and Transport, 214, Local Economy Promotion Measures 16 Ministry of Land, Infrastructure and Transport, 214, Follow-up measures to the 9.1 Announcement (1): Curtailing of house resale period, etc.

17 32 REAL ESTATE 33 Eased restrictions on resale and staying period Items Public sites where green-belt restrictions have been lifted (85 m 2 or less) Public sites - Private sites - Less than 7% of the market price 7-85% of the market price 85% or more of the market price Restriction on resale Mandatory stay Current Revised Current Revised Public housing 8 years 6 years 5 years 3 years Private housing 5 years 3 years N/A - Public housing 6 years 5 years 3 years 2 years Private housing 3 years 2 years N/A - Public housing 4 years 4 years 1 year 1 year (No change) 1 year Above 1% of the market price Private housing 2 years 1 year N/A - 1 year (speculationriddled areas: 5 years for 85 m 2 or less; 3 years for more than 85 m 2 ) 6 months (3 years for speculationriddled areas) No change No change No change - years * Source: Ministry of Land, Infrastructure and Transport, press release, SUCCESS CASES

18 34 REAL ESTATE 35 Construction of Incheon Bridge Investor / Nation: AMEC / UK Investment area / Project owner: Songdo, Incheon / Incheon Bridge Co., Ltd. Date of investment declaration / Size: / USD 37.9 million Result of investment Incheon Bridge, the world s 5 th longest cable-stayed bridge, spans a 12.3 km distance. AMEC will be maintaining Incheon Bridge for 3 years until 239, collecting the toll. The construction cost of Incheon Bridge will be recollected through Incheon Bridge Co., Ltd s 23% share of the bridge. RELATED ASSOCIATIONS AND ENTERPRISES Legoland Investor / Nation: Merlin Entertainments Group / UK Investment area: Cheonan, Gangwon Province Investment scale / Development area: USD 1 million/1,291,434 m 2 Investment details The first Legoland in East Asia Legoland is going to accommodate theme parks, hotels, lodging facilities and premium outlets. Incentives The approximately 28, m 2 area to accommodate a Legoland in Jungdo, Chuncheon will be designated as an independent investment area for foreigners. Expected effects Legoland is expected to draw more than 2 million family tourists from both Korea and overseas annually. The American Economic Research Association forecasts that Legoland Korea will be visited by about million people in 225, starting with million visitors in 217.

19 36 REAL ESTATE 4 RELATED ASSOCIATIONS AND ENTERPRISES 37 Korea Developer Association (KODA) KODA s key service areas Key services Advanced land development Establish a transparent market system Carry out advanced developments Promote its standing as a development leader Develop diverse financing methods * Source: KODA s website 1. Take the initiative in developing the country's land based on a balance with the environment 2. Review and propose policies for efficient land use 1. Earn consumer trust by improving the morality of employees, e.g., through the KODA Certification System 2. Hold lectures, seminars, forums and PR programs for development projects 1. Conduct research on overseas marketing development 2. Implement projects to promote cooperation with international organizations in connection with development projects 1. Establish and support a development information system 2. Define cooperative relations with public developers through the appropriate allocation of roles 1. Conduct research on how to engage financial systems in real estate development projects 2. Carry out research on financial methods, such as REIT, PF, etc., in response to the Post-sale System American Chamber of Commerce in Korea (AMCHAM Korea) Key service areas of AMCHAM Korea Korea Industrial Complex Corp. (KICOX) Key service areas of KICOX Key services Construction of factories Support for enterprises Development and sale of industrial complexes Restructuring projects Cluster business Eco-friendly industrial projects 1. Free proxy service for the construction of a factory 2. Run an online application system for the construction of a factory 3. Factory construction-related education 4. Run a foreign investment support center 1. Support the construction of QWL Valley 2. Run a mutual growth support center 3. Support business management activities 4. Run a Corporate Guide 5. Promote the relocation of companies to provinces and local investments 1. Develop small- and medium-sized industrial complexes 2. Request a new industrial complex development project 3. Sale of industrial complexes 1. Restructuring projects 2. Industrial complex environment improvement projects Dept. in charge Factory Construction Team Construction Project Team Sales Marketing Team Restructuring Planning Team Industrial Complex Environment Improvement Team Cluster Project Team Green Project Team Deliver information on the business and economic environment of Korea Promote the competitiveness of the Korean economy Help implement smooth commerce between Korea and the USA Contribute to efforts to support the unemployed and their families and ease youth unemployment * Source: AMCHAM Korea s website Key services 1. Hold irregular committee meetings in each of the 31 industrial sectors 2. Hold regular General Membership meetings each month 1. Propose policies to the Korean government on an irregular basis 2. Undertake advisory roles such as participation in the Presidential Council on National Competitiveness Hold a Door Knock event to dispatch delegates of AMCHAM Korea to Washington D.C. to introduce the investment environment of Korea to the U.S. Congress and administration Establish a charity dubbed Partners for the Future Foundation to grant full scholarships to college students from unemployed families and offer job creation programs for youngsters Joint logistics projects * Source: KICOX s website Savills Korea Cushman & Wakefield Korea CBRE 1. Planning Team, Gyeonggi Province Headquarters 2. Planning Team, Incheon Headquarters 3. Planning Team, Southeast Headquarters 4. Social Logistics Center 5. Changwon Logistics Center 6. Namdong Logistics Center DTZ Korea Jones Lang La Salle PWC KPMG, etc.