Minister of Land, Infrastructure and Transport Won Hee-ryong. Courtesy of Ministry of Land, Infrastructure and Transport

Infrastructure ministry says mega project will lay foundation for long-term bilateral cooperation

By Lee Kyung-min

Korea will be able to provide key know-how to help Saudi Arabia elevate its profile via the NEOM project, underpinned by trust in the Asian country's capabilities in city planning and infrastructure construction in the Middle Eastern nation dating back to the 1970s, according to Korea's top land, infrastructure and transport policymaker.

In a recent interview with The Korea Times, Minister of Land, Infrastructure and Transport Won Hee-ryong said the $500 billion (630 trillion won) NEOM project will be the first in a slew of joint Korea-Saudi Arabia projects encompassing transport system building, culture, defense, energy and ICT.

Crown Prince Mohammed bin Salman, the prime minister of Saudi Arabia, initiated the five-stage project in 2017 to build the 26,500 square-kilometer mega city in Tabuk Province along the country's northwestern coastline on the Red Sea.

"The Korea-Saudi alliance and mutual trust remain stronger than ever," Won said. "Key local builders and plant manufacturers have, since the 1970s, built robust track records in construction period and quality, a point of pride and strength for local players widely recognized by the Saudi authorities."

An illustration of NEOM city, the smart city built from scratch in the Arabian Desert. Courtesy of Tomorrow.City

Since 1965, Saudi Arabia has inked an overseas construction order totaling $156 billion, accounting for 17 percent of Korea's overseas construction order total. It helped Korea cement its standing as the fifth-largest global construction market player with a reported overseas construction order total of $927 billion over the past five decades as of Dec. 21. Korea's second-largest income from overseas construction, totaling $83.1 billion, comes from the United Arab Emirates (UAE).

The former Jeju governor believes the NEOM project will lay a strong foundation for long-term bilateral cooperation over the course of what he says will be an effective transition for the oil-rich nation to a green, high-tech and sustainable economy. The role of Korea's top local builders, manufacturers and energy firms will be pivotal in the process.

The joint cooperation as well as strengthened ties with other key partner countries including the UAE, Indonesia, Vietnam, Peru and Mexico, will in turn result in Korea winning overseas construction projects of $50 billion every year until 2027, the key growth initiative of President Yoon Suk-yeol.

Minister of Land, Infrastructure and Transport Won Hee-ryong delivers a presentation to Saudi government authorities on plans to bolster bilateral cooperation in the construction of NEOM city at Crowne Plaza Riyadh Rdc Hotel & Convention, Riyadh, Saudi Arabia, Nov. 6. Courtesy of Ministry of Land, Infrastructure and Transport

The minister expressed hopes that 26 memorandums of understanding (MOU) signed between Korea and Saudi Arabia, Nov. 17, will deliver tangible results, in line with market watchers' expectations of about 40 trillion won in joint economic cooperation in manufacturing, smart technology, bio and healthcare, city planning, infrastructure building, energy, agriculture, environment and gaming.

The MOUs that were signed were part of Crown Prince Mohammed bin Salman's visit to Korea last month. About 200 local industry leaders and 60 Saudi trade, investment authorities and business executives attended a Korea-Saudi Arabia investment forum.

The ministry's initiative will concern, according to the minister, railroad transit construction in NEOM, modular housing, smart city solutions, engineering services, crude oil, liquefied gas and petrochemical industries, a project expedited with the launch of One Team Korea comprising key economy-related ministries and financial authorities.

"The government will spare no efforts for the competent local industry leaders to identify a growth opportunity that will be later remembered as the second Middle Eastern boom. Included are local construction affiliates of large conglomerates, including Hyundai and Samsung, among those overseeing The Line, a project involving the construction of a 170-kilometer linear city, the first stage of the NEOM project," Won said.

The ministry's division in charge of overseas construction policies will outline policy assistance measures to help local builders win engineering, procurement and construction (EPC) contracts, an advanced and more complete form of front end engineering design (FEED), otherwise known as basic engineering. FEED is conducted before EPC, including studies to review technical issues and estimate rough investment costs.


Housing, real estate market

The sustained spike in the local real estate market over the past few years, in his view, should be able to find a period of gradual flattening, as buffered by deregulatory measures to reintroduce market principles with price functions fully restored and government intervention limited.

Anchoring the policy directive is a new approach to equity holdings, long demonized to punish homeowners whose heavier tax burdens fell almost exclusively on the tenants in the form of higher rent.

The previous Moon Jae-in administration sought to control surging real estate prices by levying higher taxes on homeowners and tightening lending rules. But the measures only ended up accelerating a spike in housing prices. Market watchers say that was one of the devastating policy missteps of the previous administration.

The recent decline in housing prices is inevitable, a result of rapid monetary policy tightening and subsequent adjustments in market participants' expectations on price trajectories, according to the minister. The slew of unfavorable factors combined will continue applying downward pressure on the real estate market, which experienced extreme overheating over the past few years.

The government is, he said, aware that the sharper-than-expected fall in house prices can bring shocks to the economy, exacerbating the lives of many in the form of higher uncertainties in living arrangements and borrowing conditions.

"The government will lift demand-control measures in the broader context of normalizing the unreasonably tightened tax schemes as well as government-set officially appraised prices of apartments and fair market rates used to determine the amount of tax on homeowners," Won said.