$3.7 Billion Olympic bullet Train for South Korea' Set to Reverse Construction Slump

South Korea’s hosting of the 2018 Olympics is triggering an $8.4 billion building boom that will expand the nation’s high-speed rail network and create a winter- sports destination targeting millions of Chinese tourists.

Organizers will spend $3.7 billion on a train running from the central city of Wonju to host cities Pyeongchang and Gangneung in the east. Another $1.4 billion is earmarked for six athletics venues, accommodations and media facilities, according to International Olympic Committee documents.

Those plans may benefit the largest Korean construction companies, which are grappling with weak home sales and tightening credit. Hyundai Engineering & Construction Co., the largest builder; Samsung C&T Corp. (000830), the second-biggest; and Hyundai Rotem Co., the nation’s biggest maker of train cars, all expressed interest in bidding for Olympic contracts.

“The domestic construction industry has been going through hard times in recent years because of the slump in the housing market,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “It will not only breathe some life into the region but also to the entire nation.”

Revenue from the Olympics may help builders fund new projects after banks pared lending for real-estate developments by 26 percent in the three years through 2010 on concerns about bad loans, according to data from the Financial Supervisory Service, the financial regulator.

$60 Billion Benefits

The average price for new homes fell 8.9 percent last year, the biggest decline since 2002, Byun said. The economy is likely to expand 4.3 percent this year, down from an earlier estimate of 4.5 percent, the central bank said July 15.

Hyundai Engineering has gained 2.3 percent, compared with a 0.75 percent decline in the benchmark Kospi Index, since South Korea was awarded the games July 7. Samsung C&T has gained 9.7 percent and Doosan Heavy Industries & Construction Co. 5.3 percent in the same period.

The 2018 Olympics will generate 21.1 trillion ($19.8 billion) directly for Asia’s fourth-largest economy, with another 43.8 trillion won in investment, tourism and branding coming in the decade after, said Park Tae Il, a senior research fellow at Hyundai Research Institute in Seoul.

Other cities have struggled with the aftermath of hosting the Olympics, prompting an IOC study. Vancouver, site of the 2010 winter games, reduced prices on condominiums in the former athletes’ village by an average of 30 percent to spur flagging sales, the Canadian Press reported in February.

Avoiding White Elephants

Beijing, host of the 2008 summer games, built a shopping mall and underground tunnel near its Olympic stadium to help cover operating costs, the state-run China Daily newspaper reported last year.

“The government will have to be prudent in what projects they spend on so they don’t gather dust after the games are over,” Byun said. “We’ve seen that happen before and I’m pretty sure that is on the top of the list of things the government doesn’t want to repeat.”

South Korea was chosen over Munich and Annecy, France, in its third try for the winter games. The nation previously hosted the 1988 Summer Olympics in Seoul.

Most athletic events -- including skiing and bobsledding -- will be in Pyeongchang, about 130 kilometers (80 miles) east of Seoul in the Taebaek mountains. Skating and hockey competitions will be held further northeast in Gangneung on the east coast.

High-Speed ‘Catalyst’

More than $1.4 billion was spent preparing Pyeongchang for unsuccessful bids for the 2010 and 2014 winter games. Seven venues were built, and two of them -- for curling and snowboarding -- need upgrades for the 2018 Olympics.

The centerpiece of the forthcoming plan is a 113-kilometer train connecting Wonju with Pyeongchang and Gangneung. The existing railroad bypasses Pyeongchang, so travelers from Seoul must get off at Wonju and take a bus the rest of the way.

That journey takes about two hours. The new train, which can travel at speeds up to 250 kilometers per hour, will cut that to 68 minutes, according to the IOC’s bid assessment.

Going to Gangneung will take another 12 minutes. Construction could start later this year, with completion scheduled for 2017.

“This rail line is absolutely necessary for the games,” said Lim Jong Il, deputy director of the high-speed rail division at the Ministry of Land, Transport and Maritime Affairs. “The new Wonju-Gangneung railway can act as a catalyst to expedite the national rail-line projects.”

Decade-Long Plan

South Korea has embarked on an 88 trillion-won plan this decade to extend passenger and cargo networks by 39 percent to 4,934 kilometers. About 16 trillion won is for high-speed trains, including the Olympic line and another linking Seoul with Mokpo to the south.

Existing service between Incheon Airport and Seoul will be upgraded so Olympic visitors can take one high-speed train all the way from the airport to the venues.

The government plans to move about 27 percent of the population by trains by 2020, compared with 16 percent now. The percentage of cargo moving by rail would increase to about 19 percent from the current 8 percent.

“Korea needs to build up its rail network because it will help to move not only people but cargo faster and more efficiently,” said Heu Moon Wook, an analyst at KB Investment & Securities Co. in Seoul. “Construction companies will play a big role because they will not only have to lay down the tracks but they will have to build bridges and make tunnels to go through mountainous areas.”

Targeting Chinese

Hyundai Engineering, Hyundai Rotem and Doosan Heavy, South Korea’s biggest maker of power equipment, said in e-mails they believe the Olympics will generate business for them.

“With the recent decrease in public bidding projects, we are definitely interested in the related projects,” said Sohn Soo Keun, a spokesman for Samsung C&T.

Organizers will spend $927 million on Olympic villages and broadcast centers, and $461 million on new venues -- two hockey rinks, two skating rinks, an alpine ski run and a track for the bobsled and luge, according to the bid. The venues should be ready for testing by the end of 2016, said Jeong Hong Sub, a spokesman for the Olympic bid committee.

South Korea told the IOC it wants the games to leave behind a winter-sports destination for Asian tourists. The primary target should be the Chinese, James Rooney, chief executive officer of Market Force Co. in Seoul, said on Bloomberg Television.

About 8.8 million people visited South Korea last year, including almost 1.88 million from China, according to the Korea Tourism Organization. The number of Chinese visitors may reach 3 million by 2012, according to the Ministry of Culture, Sport and Tourism.

South Korea’s tourism sector is “significantly underdeveloped” because the nation has concentrated on its “tangible goods” sectors, Rooney said. Because of the Olympics, the nation may attract as many as 50 million visitors by 2025, potentially generating $50 billion-$100 billion in annual spending, he said.

“The tourists that are going to be active in this part of the world are going to be Chinese tourists,” Rooney said. “They like to spend money.”

To contact the reporters on this story: Rose Kim in Seoul at rkim69@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Brett Miller at Bmiller30@bloomberg.net