Building on an Asian promise

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Ambitious: Richard Lee, vice president of S.Korean construction and contracting company Sungwon.

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Future: Sungwon is behind two projects at Dubai’s prestigious Business Bay development.

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Making a point: Sungwon is also considering launching projects in Abu Dhabi.

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The South Korean construction market may be less mature than others, but beware: Local companies from the republic are rapidly diverting their investment-hungry attention to the Middle East and GCC regions, in search of fresh opportunities.

What you might not realise is that a number of landmarks shaping Dubai’s horizon — including Emirates Towers, Grand Hyatt Hotel and the in-progress Burj Dubai, which will be the world’s tallest tower — are the work of South Korean contractors. A strong newcomer, however, has emerged on the scene, and is promising to take the market by storm.

“Even though we are a latecomer to the overseas market outside of Asia we have every intention of matching and surpassing our revenues in South Korea through work outside,” says Richard Lee, vice president of developer and contractor Sungwon.

Sungwon opened its first showroom in Dubai only last December and uses the venue to showcase its two new projects at Business Bay and Culture Village. This way, says Lee, customers “will not be cheated” into buying property from simply a brochure, but instead will be able to get a realistic glimpse of their future purchase.

“These two projects are only a showcase of our talent both from a design and conceptualisation perspective, to the construction perspective,” explains Lee.

He adds that while the UAE is swamped with developers like Damac, Tameer, Emaar and Nakheel, what the market truly lacks is enough construction companies to handle the workload.

“As the big developers outsource all their construction and there is so much work, construction companies become very busy. The negative aspect of this is that they could all end up breaking their promises,” says Lee. This, as he explains, can result in construction companies not delivering on time and perhaps even cutting corners by minimising costs.

“As a consumer, when you move in, the end result you get is totally different to what you perceive it to be when you’re buying it off the flannel,” says Lee, in a strong accent.

Sungwon is hoping to play a dual-role in solving these problems and because the company acts as a contractor and a developer, it always makes a point of keeping both aspects in mind. Lee, however, says he is looking forward to the company doing much more in the region than just developing and building their own projects: “We plan to do construction for other developers in this market.”

As a construction company, Lee says that Sungwon’s marketing strategy will differ from that of local companies. He admits that despite the business being very late to react to the speed of the region’s construction growth, there is still a very big need, especially in Dubai, for “qualified contractors” as developers’ main concerns surround finding the right contractor who can guarantee delivery of a project on time.

“If they don’t deliver on time, and most of the time they don’t, it’s the developer that has to deal with the customers and gets the bad reputation in the end,” he says.

Sungwon has a big job on its hands, however it appears that the Korean “real mobile construction company”, as Lee calls it, has it all mapped out. After building around 1000 high-rise buildings in South Korea and over 135,000 apartments, Lee is supremely confident Sungwon has the experience to excel, especially with its ability to maximise space and minimise costs for the benefit of the customer.

According to the vice president, Sungwon is currently establishing partnerships with local companies including Dubai Properties, and is also aiming to handle much more civil engineering and infrastructure projects across the region.

Sungwon’s portfolio, in addition to building towers, already boasts a wide range of civil engineering projects including the Seoul World Cup Stadium for the FIFA World Cup 2002, as well as highways, high roads, bridges, tunnels, subways, high-speed railroads and golf courses in Korea and elsewhere: “You name it, we built it. We’ve built everything except nuclear power plants.”

Lee adds that the company is not just looking at project opportunities in Dubai, but also Abu Dhabi, Qatar, Bahrain and Saudi Arabia. So far, the company’s launch in the region has been received “very warmly” he says.

This interest was manifested in the annual property exhibition, Cityscape Dubai 2006, when Sungwon’s booth stood right beside Emaar’s.

“For every consumer enquiring about the purchase of the apartments we had a developer asking us to do contracting for their own projects,” says Lee.

Sungwon’s contracting activities will first focus on Dubai. Lee believes the company stands out among other construction companies as it possesses all the elements that make up a successful construction company including labour, the management of raw material, sourcing and purchasing, technical skills, and financial capabilities.

Lee, however, sees an underlying constraining factor affecting the regional labour scene. With several construction companies employing mainly Indian workers, this then results in an over-usage of one specific “labour pool”.

“Indian workers have been very good and productive; not only in the region but all over the world. Korean workers did the same in the seventies and eighties when we built all the highways in Saudi Arabia and the man-made projects in Libya,” Lee explains.

With a strategic alliance between Sungwon and the governments of Vietnam and Mongolia, however, the map of the region's labour force and particularly Dubai will almost certainly change. Lee promises that using labour from countries that have traditionally not been sending workers to the region will give the company a competitive advantage over other contractors, thereby solving the labour issue. “We’ll use Indian, Pakistani and Bangladeshi labour, but we’ll also use Vietnamese and Mongolian. We can show that with our labour sourcing we can increase productivity and speed, as speed means saving money. We have worked a lot with them and they are very hard working and their productivity levels are very high,” asserts Lee.

Labour sourcing aside, South Korea is one of the biggest producers of steel in the world; recording an increase reaching 44 million tonnes in the last 10 months, according to the Iron and Steel Statistics Bureau. The republic is also a large producer of cement, and with supply levels exceeding demand it is no wonder the export market to the Middle East is big business. The ability to bring in basic construction components from the largest manufacturers back home is yet another advantage for Sungwon in the local market. In addition, the company has access to the leading Korean manufacturers of heavy construction equipment such as large cranes.

While Sungwon continues to examine its regional opportunities, dedicating an initial US$1.2bn of funds to the region, it has debuted with two projects in Dubai including Santevill at Business Bay, a 24-storey residential tower to be completed in 2009. It has already met with great success. After only a week of being put on sale the tower sold 40% of its properties. The project’s piling construction has already started, while the main construction will commence in less than two months from now. When completed, the building will feature studio, one and two-bedroom loft apartments and palatial penthouses. Over 70% of the building’s units will have a clear view of the skyline of Sheikh Zayed Road and it will become the only residential plot in Business Bay with water on both sides. Lee is very proud of the many features the project will offer.

“The penthouse will have its own exclusive elevator and lobby and so will the two-bedroom loft apartments and the main tower. With the penthouse, you not only get to design it to your specifications but it will also be named after you forever, starting from the bottom to the elevator, the mailbox, the door, everything,” he says proudly.

In addition to the Business Bay project, Sungwon is in the process of launching its second Dubai project, a twin tower development in Culture Village located in the Al Jadaf area. Lee exclusively reveals to Arabian Business that the project will be launched in three months time and comprise a 40-storey twin tower project with a residential and office tower and a shopping arcade.

“The benchmarking for that is pretty much the Emirates Towers, except that the hotel tower will be replaced with a residential tower, and the arcade will be very exclusive,” he reveals.

“It will be the main gateway from the metro station to all of the Culture Village area. The arcade will serve as the main thoroughfare to the rest of the community, and will be completed in the second half of 2009,” says Lee.

Both Dubai projects are valued at US$600m. Sungwon’s vice president explains the decision to kick off regional investments from Dubai by describing the emirate as an “international emerging market” that is also one of the fastest growing in the world, with some of the biggest players in the world in terms of construction, development, real estate investment and consumer purchases.

“People who buy apartments in Dubai are some of the most sophisticated people in the world,” Lee believes. “You have people from Russia, Iran, Iraq, Saudi Arabia, France, England and now South Korea.”

Compared to other emerging markets, Lee says Dubai has the right formula to continue on a steep growth curve and become a sophisticated market. Although a cloud of scepticism lingers over the horizon of Dubai’s future property market, suggesting that three years down the line, when many of the ongoing projects are completed, it will be hit by over-saturation, Lee predictably holds a different opinion.

“We think it’s only the beginning because in order to become a sophisticated market you have to have certain elements of regulation and administration. All of these are things that attract investors to continue to invest and Dubai has only began to release those.

“I think that the Dubai government knows all of the elements that people want, but they are very smart in that they are not releasing them all at the same time. In about three months time, when you see a drop in interest, you can guarantee that the Dubai government will release a new set of regulations or something that will stimulate and won’t let people forget,” he says assuredly.

When it comes to South Korean investors many are eager to buy property in Dubai, however Lee suggests that the Middle East remains a relatively new market for them. Interestingly, he adds that they are often much more reassured when buying from a South Korean developer building in the emirate.

“It’s still an unknown market for them and all the glories and promises of high returns are yet to be experienced. They are looking to come here and they will buy into a Korean development more than a local development,” says Lee.

Dubai’s booming property sector, however, is not the only reason that prompted the company to establish its Middle Eastern headquarters in the emirate. Lee explains that the high levels of transparency compared to other parts of the region, as well as the regionally advanced process of freehold rights for foreigners, made it a very attractive choice.

Lee is adamant that in a very short period of time, Dubai will be transformed from an emerging to a modern sophisticated market.

According to Lee, Sungwon’s investment in the region will take on various forms. “It will come in the form of land purchase then development and/or construction as well as the establishment of joint ventures of both construction companies and construction-related industries,” he says, adding that if Sungwon decides to develop a ready-mixed concrete plant or a cement or brick or steel or glass factory there is no reason why it can’t be done.

He explains that a number of other projects will soon be announced to the public. “In Dubai, in addition to our own initiatives, we are in discussion with a great leading group in order to set up various types of joint ventures related to construction,” he reveals.

Sungwon is also looking at opportunities in Abu Dhabi after being approached by the capital’s Department for Tourism and Investment, to participate in the construction of projects that will enhance and promote Abu Dhabi to tourists from around the world.

Another presence for Sungwon is in Qatar where they are bidding for various public work tenders worth about US$1.5bn. The company is also planning to raise its level of activity in Bahrain through public projects, as well as contracting for several large resorts and major complexes.

“We are also in the process of establishing a joint venture in Saudi Arabia with a leading group there. The Saudi construction market is bigger than everything combined together in the Middle East,” he says.

Sungwon has been listed on the Korea Stock Exchange since 1990, has over 2000 employees, wide revenues of US$1bn, and about US$3.5bn worth of construction projects underway. Lee believes that with the company’s regional activities its entire revenue will increase over the upcoming three years to reach US$2bn. South Korea’s real estate market, however, remains an untapped venture for foreign construction companies. Leading developers from other countries have only recently considered it as an investment option.

“We don’t see Emaar or Nakheel or Dubai properties in Korea yet, but there are several upcoming projects that can be interesting to the most sophisticated international real estate developers, and we plan to create an opportunity for a local partner to participate in those projects with us,” says Lee.

The future of Sungwon in the region seems to hold more than just a promise or two. Lee describes the company’s ambitious regional masterplan as a “fast expansion program”. In particular, he looks forward to the company adding Abu Dhabi to its regional portfolio as a lucrative investment.

“Wherever there’s development there will be contracting work, and we are not afraid to go anywhere,” Lee concludes.

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