Tourism industry gets gov’t boost

In the 7th edition of its investment promotion plan announced Sunday, the government said it would build more hotels and open tourism-related facilities like duty-free shops to accommodate the rising number of visitors and encourage them to spend.

Korea’s tourism infrastructure is weak compared to other countries. According to the most recent data from the World Travel & Tourism Council, the travel and tourism industry only took up 5.6 percent of the nation’s gross domestic product, which is below Northeast Asia’s average of 8.8 percent and the global average of 9.7 percent.

The UN’s World Tourism Organization reported that in 2013, Korea collected $14.6 billion in revenue from tourism, while Japan collected $15.1 billion and China brought in $51.7 billion.

The government noticed that despite the increasing number of foreign visitors, there are an insufficient number of hotels and other tourism facilities, preventing the country from turning the sector into a major source of earnings. In 2014, the government estimated that 14.2 million tourists visited Korea.

“For the last five years, the number of foreign tourists has increased an average of 12 percent annually, but the number of hotel rooms increased only 4.3 percent in the same period,” the Finance Ministry said in the new report.

The government said that in the past, it had focused on easing regulations on the location of hotels. But it decided to focus on financing issues after a report showed that funding was the biggest factor holding back the supply of hotels.

According to the Ministry of Culture, Sports and Tourism, 37 percent of hotel business applicants from 2009 to 2013 gave up on building the accommodations because of financing, even after they had dealt with location problems and got their business plan approved.

“In Korea’s hotel construction, banks look for whether a hotel business operator has collateral or not, rather than looking at their business plan or reputation,” the report said. “The Tourism Promotion and Development Fund is also a type of secured loan, so it doesn’t give much help to small companies that don’t have enough collateral.”

The government said that it will give 1 trillion won ($928 million) to support hotel construction and hopes to add at least 5,000 guest rooms in the next three years.

For large hotels, the government said it will allow builders to get money from the investment stimulation program run by Korea Development Bank, and to help companies building smaller accommodations, it has raised the Korea Credit Guarantee Fund’s guarantee limit from 10 billion won to 20 billion won.

The government is also giving incentives to companies that want to convert their buildings or offices into a hotel. The special law for expanding tourism and accommodation facilities, which includes supporting low interest rates and giving more land to hotel builders, expires at the end of this year, but the government said it will be extended.

The Park Geun-hye administration also vowed to support hotel real estate investment trust (REIT) businesses so that more investors will put their money into the lodging industry.

“The hotel business has a characteristic that requires large scale funds up front and then collects returns on the investment over a long period, like 10 to 20 years,” the report said. “So, there is need for long-term investment funds like REIT and pension fund to be invested in this area.”

For this part of the plan, the Tourism Ministry said that it will revise the tourism promotion act in June so that new REIT businesses can get investment from the Tourism Promotion and Development Fund.

For those who plan to enter the hotel REIT sector, the ministry said that one of their financiers should be a business that has been around for 10 years and that investor should have at least a 20-year contract with the hotel operator.

“In advanced countries, the owner of a hotel and operator of the hotel are separate,” the report said. “For instance, Intercontinental Hotel Group is a hotel business operator that runs some 4,600 hotels, but only owns about 10 hotels.”

The Ministry of Land, Infrastructure and Transport said that it will also revise the real estate investment company act in September to allow consignment management of hotels.

The Financial Services Commission announced that it will lower its stock-listing requirements for hotel REIT companies in March so that they can gain investment.

Besides solving accommodation issues, the government said that it will issue licenses for more duty-free shops to stimulate spending by foreign tourists. Bank of Korea data showed that tourists in Korea spent an average of $1,255 from January to November in 2014. This is a drop of nearly $150 from 2008.

“In Seoul, no new duty-free shops have opened since 2000 and tourists sometimes have to wait more than 30 minutes at the cashier,” the report said.

The government said that it will focus on opening duty-free shops in the city rather than in airports and ferry terminals. There are 16 duty-free shops in downtown Seoul and their sales have been soaring. According to government data, duty-free shops in the city collected 4.4 trillion won from January to October in 2014, which is roughly 1.5 trillion won more than in 2011.

Korea Customs Service said it will issue three duty-free shop licenses for Seoul and one for Jeju.

kjoo@joongang.co.kr [BY JOO KYUNG-DON]