Vietnam is not immune to the global economic crisis, as data released by Vietnam National Administration of Tourism (VNAT) showed that foreign tourist arrivals to the country last year were down by 10.9 per cent against 2008.
Kai Marcus Schröter, chief executive officer of Hanoi-based HTM Management Consultancy Company - which has provided hospitality and tourism services in Vietnam since 1998, said the slump in arrivals badly affected Vietnam’s tourism real estate sector in 2009.
“Our surveys revealed that, with few exceptions, particularly luxury hotels saw their average occupancy and room rates decrease by 15-40 per cent. The average occupancy in the major cities dropped to about 50 per cent,” said Schröter. He said the situation for some beach resorts had been milder as they experienced a strong increase in domestic tourism during the summer.
“For hotel developers, the global financial crisis and its impacts on tourism led to many smaller to mid-scale projects being put on hold. Some foreign investors withdrew completely and we saw a surge of domestic investors jumping in,” he said.
Sharing Schröter’s view, Ho Chi Minh City-based Celadon International Group chief executive officer Paul Stoll said 2009 was not a good year for Vietnam’s tourist industry due to the world’s financial crisis.
“The slump in foreign tourist arrivals partly led Vietnam’s tourism real estate market to slow down, badly affecting investors like us. What investors could do in 2008-2009 was mainly focusing on projects started in 2006 and 2007 so that they could be put into operation in 2009,” Stoll said.
“In 2009, there was little new investment in Vietnam’s tourism real estate market. The year also witnessed many projects in the country being delayed and cancelled,” he said. Schröter said many small hotel developers relied on overly optimistic expectations and cash flows arising from villa sales and high occupancy and room rates, which did not materialise.
“They reacted too slowly to the writing on the wall and signs of the upcoming economic crisis that began in early August, 2008. Many of these hotel projects were put on hold. Some were sold or even scrapped by the government with licences rightfully revoked,” Schröter said.
According to the Ministry of Planning and Investment’s Foreign Investment Agency, to date, there have been 300 foreign-invested tourism projects worth about $20 billion in Vietnam. In 2009, Vietnam’s tourism sector still attracted 32 newly-licensed and 8 projects increasing capital, worth total $8.8 billion. Meanwhile, there were 26 hotel and restaurant projects with registered capital of $9.12 billion in 2008.
Prospects for the Year of Tiger
But, things are now turning around. The number of tourist arrivals to the country in January, 2010 increased by 10.6 and 20.4 per cent against 2009’s December and January, respectively.
“This is a positive sign for Vietnam’s tourism real estate market,” Stoll said.
VNAT head Nguyen Van Tuan said the industry’s 2009 turnover was $3.78 billion, up by 9 per cent against 2008, thanks to the increase in the quantities of local tourists from 21 million in 2008 to 25 million in 2009 on the back of Vietnam’s tourism promotion programmes.
The VNAT optimistically said Vietnam would likely be visited by 4.5-4.6 million foreign tourists this year, up 18-21 per cent against 2009 and the number of local tourists in 2010 was expected to be 27-28 million. The industry’s turnover for 2010 is expected to reach $4.2 billion, up 7.1-11.4 per cent against 2009.
“Despite the global economic downturn, tourism is booming in Vietnam. The drop in tourist arrivals does not seem to deter investors from putting their bets on hotel and tourism developments in the country,” Schröter said.
“Vietnam’s attractiveness is expressed clearly through the CB Richard Ellis Vietnam’s studies, which said 70 per cent coastal villas in Danang were bought before they were finished. This is an unusual trend in the world’s real estate market,” said Nguyen Trung Thanh, tourism management manager of Vung Tau International Tourism Service Company’s Vung Tau Intourco Hanoi Branch.
According to the VNAT’s Hotel Department, Vietnam is home to 10,900 hotels with 215,000 rooms. Of which there are 35 five-star hotels with 8,800 rooms, some 95 four-star hotels with over 11,600 rooms, some 184 three-star hotels with 13,168 rooms and 710 two-star hotels with 27,000 rooms. “Vietnam’s number of four- and five-star hotels has multiplied over the past decade. At present, it still fails to meet the market’s increasing demand,” said Do Thi Hong Xoan, head of the department.
A golden age dawns
Stoll said Vietnam’s tourism real estate market faced a golden future. “That’s why we are developing significant tourism projects in all categories from three- to five-star hotels and resorts in many provinces in Vietnam such as Celadon Palace Hotel in Hue city, Imperial Hotel in Ba Ria-Vung Tau province, Binh Thuan province-based Exotica Playa Resort and the Celadon Green Island Hotel Danang,” Stoll said.
“In 2010, we can see many optimistic signals, we will not only cooperate with local investors to develop high-quality projects, but also attract more investment capital from foreign investors,” he said.
Schröter said hotel developers with feasibility studies, long-term strategic plans and sound financial capability had not been much deterred regarding their hotel investments in Vietnam. “Most foreign developers we have spoken to have taken some corrective measures early on, created synergy effects between different projects and downsized project teams to reduce costs or rearranged the disbursement of funds,” he said.
According to Nguyen Van Thieu, vice chairman of Binh Thuan province’s Rang Dong Group, an overall look at Vietnam’s tourism development revealed many big opportunities to invest in. “The country’s economic development over the past few years has resulted in an increased demand for tourism, which can be seen in a trend that people have shifted from renting hotel rooms to buying villas or apartments at tourism areas,” Thieu said.
For example, according to Binh Thuan province’s Department of Culture, Sports and Tourism, over the past five years, the number of tourism projects in Phan Thiet has increased by 25-30 per cent annually, while the city’s tourism turnover has increased by more than 30 per cent per year.
Schröter said Vietnam had a large demand for quality accommodation on international standards. Hotspots for hotel investments remain in his view include Hanoi, Quang Binh, Quang Nam, Ba Ria-Vung Tau, Ho Chi Minh City, Phu Quoc and other regions.
“I believe some markets will reach saturation in 2015-2018, like the major cities of Hanoi and Ho Chi Minh City. But we will still see strong demand for especially three- to four-star luxury hotels. Hanoi, for instance, will have five new four- to five-star hotels coming on the market in 2010,” he said.
He predicted that during 2015-2018, many locally-owned and managed mid-scale hotels and resorts would go through a process of change, either be restructured and upgraded, franchised and operated by international brands or sold.
“We will also see a continuing strong demand for hotel developments of international standard three- to five-star properties in secondary and tertiary locations of Vietnam, for example at provincial capitals near industrial zones, ecological resorts and mixed use developments at beach destinations,” Schröter said.
However, South Pacific Travel Company director Nguyen Xuan Thuy said though investors were returning to the market attracted by lower prices, additional liquidity and a more stable economic environment, improvements to Vietnam’s infrastructure, investment regulations and the visa system would also attract more investment.
“The most important thing is that local developers have to professionalise the planning, development, management and marketing of their hotel properties. I think that unique concepts, strong brand image, professional management and customer service orientation will be crucial in this regard,” she said.
Schröter also said developers should seek professional advice for feasibility studies and conduct detailed market analysis, carefully check location, infrastructure and market access. “Investment decisions based on tax incentives, for example, are not wise if hotel developers cannot bring guests to their hotels because of the lack of infrastructure,” he said.
Source: Vietnam Investment Review
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