In early 2004, Gangwon Provincial Government wished to attract foreign capital to assist in the development of a tourist site located in Goseong, Gangwon Province, Korea. Goseong-gun and requested BHP Korea (a sister company of Professional Property Services and of which both Nicholas Margaret Brooke are Directors) and KPMG to draw up this Offering Memorandum on its behalf for circulation to a selected number of potential investors.
Located in Goseong in the northernmost part of South Korea, Hwajinpo offers a particularly attractive natural landscape of clean seaside, thick pine forest, and thousands of migratory birds, providing an ideal holiday location and relaxation for those looking for a change from urban life.
Hwajinpo sets itself apart in the sense that it is a starting point of the Mt. Kumgang tour, which greatly contributes to active inter-Korean exchanges.
Being located far from the Seoul Metropolitan Area, Hwajinpo provides a sense of isolation from complicated daily lives. Dongseo Expressway is likely to be constructed, signaling better connection to the site which is well connected to local roads which provide accessibility within the area.
Despite the global economic downturn, Korea’s national sovereign rating has been maintained since November 2002, when the rating was raised. In terms of market potential, Korea ranked 3rd in Asia after Singapore and Hong Kong.
The GDP growth rate slowed in 2003, but is expected to reach 5% in 2004, given the widespread signs of economic recovery in the fourth quarter of 2003.
The number of tourists to Gangwon Province is steadily increasing. Between 1999 and 2002 the number of foreign tourists rose by 30%. Given China’s continued strong economic growth and free access of Chinese visitors to Korea, the number of visitors is expected to keep rising in the foreseeable future.
Due to widespread introduction of a 5-day workweek and free selection of vacation periods, the local leisure market is expected to increase two fold. In 2001, the total expense per person for multi-day trips outpaced the expense for single-day trips. This indicates rapidly growing demand for multi-day trips.
The average occupancy rate of hotels across the nation has decreased since 2000 while that of Gangwon Province has consistently increased since 1998.
With the consistent rise in the number of condominium rooms, the sales from accommodations of major resorts are increasing annually, resulting in the continued expansion of the resort market.
To minimize the environmental pollution of Hwajinpo and to create a resort complex, a club resort, town house project, spa & therapy center, hotel, peace town and an eco-park.
The hotel, club resort, town houses and spa & therapy center to be developed in the first phase will differentiate Hwajinpo from other tourist sites and make it much easier to attract foreign investment.
In time for unification, peace town is to be introduced in the second phase and an ecological resort and eco-park will provide unusual experiences and the chance to enjoy leisure sports.
On the assumption that a hotel, club resort, town house project and spa & therapy center are all developed by a single developer, the total investment required for the 4 facilities is US$95.2 million. However, if the land required is leased, US$14.6 mil. could be deducted from the initial investment. Therefore, the actual project cost is projected to be US$80.6 million.
On the assumption that the facilities are operated for 10 years after development, the pre-tax IRR and after tax IRR are estimated at 19.81% and 18.43%, respectively.
If the subject site is designated as a foreign investment zone, corporate tax, income tax, property tax and aggregate land tax will be 100% exempted for 7 years from the first year of income and 50% deductible for the next 3 years.
The land lease cost is more than 1% of land price and 50~100% deductible through negotiation.
Development levy and traffic increase levy are 100% exempted, and substitute farmland creation levy and substitute green creation levy are 50% deductible. Full support for the entitlement process will be provided.
Transportation routes to the Hwajinpo Lakes
This zone is slightly higher than other areas, so it is possible to view the Hwajinpo's spectacular scenery. A 4-star hotel will be built in the zone.
Club resort including condominium, pool villa, health care center, and sports town will be located in the zone. Each facility may be built either individually or as a whole.
This zone will include town houses that are mingled with nature. Recently, demand for "Pension" type accommodation has been on the rise by those keen to rent vacation houses as well as the elderly who want long-term accommodation in restful areas.
Spa & Therapy Center, Youth Camp Park, Health Care Center and Water Park
Eco Park, to include Ecological Parks 1 and 2, Botanical Pathway, Flower Garden, Aviary, Butterfly Museum