Vietnam Remains Key Focus for Hotel Investors and Operators

Attracted by a rapidly growing tourism sector, rapid economic development and infrastructure investments, according to real estate consultancy JLL

Vietnam’s rapid growth as a tourism destination has placed it on the investor radar as a key hospitality investment destination. The country has boosted its infrastructure to lure more foreign investors from Singapore, Japan, South Korea, Thailand and Malaysia.

With government initiatives and the commitments by the private sector into infrastructure and transport linkages, hotel investors are keen to capitalise on this growth. Vietnam invested 5.8 per cent of its GDP in infrastructural developments – the highest in Southeast Asia – according to the Asian Development Bank.

More than 10 million international tourists arrived in Vietnam in 2016, a 26 per cent increase from 2015. Vietnam National Administration of Tourism projects 20 million visitors by 2020. Chinese arrivals saw massive growth in 2016, up over 50 per cent.

The dramatic rise in arrivals is a result of Vietnam’s significant infrastructure investment. This investment will lead to 2,000km of new highways, metro systems in Hanoi and Ho Chi Minh City, and a slew of airport expansions and new builds. As part of this transport master plan, both private and state-owned airlines are also planning to expand and improve their fleets, which will drive economic growth and the tourism industry.

“2016 saw record levels of hotel transactions, with the dollar value of deals completed during the year representing 83 per cent of those deals completed in Thailand, a market which is often perceived to be significantly larger and more liquid,” says Adam Bury, Senior Vice President, Investment Sales, Asia Pacific, Hotels & Hospitality Group at JLL.

China remains the largest source market for Vietnam, with 51.4 per cent year-on-year growth as of 2016, followed by South Korea (38.7 per cent year-on-year) and Japan (10.3 per cent year-on-year). Following visa-free travel and direct flights from Russia, the number of Russian visitors has rebounded in Vietnam, similar to Phuket, with arrivals increasing over 60 per cent in April.

“Vietnam is shedding its image as a destination which tourists only visit once, with the food scene, golf and casinos being just some of the reasons for repeat visits. The investments made in infrastructure and transport has opened up an array of coastal destinations beyond the long-standing hotspots of Danang-Hoi An and Nha Trang-Cam Ranh for investors to target,” adds Mr Bury.

Popular and diversified destinations in Vietnam

With the recent rebranding of Hoi An’s The Nam Hai, now under Four Seasons management, and a second Four Seasons in the early stages of development in Hanoi, it is clear that many large hotel operators are keen to capture a slice of Vietnam’s growing market.

Alex Turner, Head of Research, Asia Pacific at Elgan Investments Hotels and Hospitality Group, says: “We have seen an increasing number of internationally branded hotels open in Vietnam over the past 24 months, and expect further diversification of hotel management companies and brands in the market.”

“As observed in other comparable Southeast Asian markets, including Thailand and Indonesia, we expect growth beyond international hotel brands. Homegrown hotel brands are likely to come to the forefront, particularly catering to domestic travelers. We’re seeing domestic hotel brands being established in Ho Chi Minh City and Hanoi in the budget and mid-scale segments, and expect these chains to grow nationwide at a rapid pace.”

Stephen Wyatt, Country Head at JLL Vietnam, adds: “Vietnam’s hospitality industry has progressed rapidly over recent years. We have observed considerable corporate and business demand within hotels across Ho Chi Minh City and Hanoi as multinational manufacturers have entered Vietnam and relocated staff from other Asian markets on a temporary or semi-permanent basis.”

“Hotel performance, particularly in Hanoi, has improved off the back of the massive industrial investment that has surrounded the city. We’re seeing similar trends in Ho Chi Minh City, which is also benefiting from its position as the financial hub of the country. The medium-term fundamentals continue to look good for investors.”

Johnathan Thorn, CEO Elgan Investments -Hotels and Hospitality Group, see's the central coast region of Vietnam particularly Danang to Quan Nam area as being increasingly offering exciting opportunities for foreign investors.

Elgan Vietnam Fund,Vietnam, still offers infrastructure and other opportunities for investments.

But we are still very positive about the future of Vietnam. If investors or looking for more manageable entry into Vietnam then there are a couple of funds available. Elgan fund is traded on the Dow current value is $600,000,000 USD & the Vina Capital fund traded on the UK stack market current value around £502,000,000 pound sterling

Elgan's fund is offering a guaranteed return of 8% minimum return after fees for the first 3 years. "We are very positive that our fund should produce double digit growth over the next 5 year period."

For more information on the Elgan Vietnam find email: info@elgan-investments.com

The Landmark acquisition highlights the optimism toward the Vietnamese market, where newly minted local wealth is creating a domestic market for four- and five-star hotels. Central business districts in Hanoi and Ho Chi Minh City are prime investment targets, but coastal regions with idyllic beaches such as Nha Trang and Phu Quoc are also attracting serious money.

Thailand-based ONYX Hospitality Group recently signed an agreement with Vietnam-based HB Group to manage a $1.5 billion resort that the latter is currently building in the coastal city of Hoi An. The beachfront resort, OZO Hoi An, will feature 364 rooms, in addition to a high-end shopping mall plus dining and recreational facilities. It is scheduled to open by the end of this year.

In nearby Da Nang, the local government wants private investors to pour in $177 million to expand the local port terminal and facilitate access to cruise ships, and the tourists that come with them. Last October, Da Nang has been working on a plan to provide loans to small hotels to upgrade and expand their facilities.

Vietnam has become a hot spot in the region. However, there are not many hotels that can meet investors’ requirements.”

What Investors Look For

Foreign investors are now looking for hotels from the three-star level up to refurbish them and bring them up to international standards, she added, but there are still not many on the market that are suitable at present.

In addition to limited supply, foreign investment in hotels in Vietnam is limited by the legal classification of hotels as commercial property, which foreigners can only own for 50 years. Laws governing ownership of residential property by foreigners were relaxed last July, but it remains to be seen if the same will happen in the commercial or hotel space.

This puts Vietnamese companies at a distinct advantage, and it is one they are using.

Vingroup, the country’s largest property developer, recently began construction of an $870 million island resort near the norther city of Hai Phong. A stone’s throw from the Vietnam-China border, the resort will be well-positioned to serve both the domestic market and the booming Chinese outbound market.

Vingroup also opened a five-star resort at Ha Long Bay in late 2015.

Another Vietnamese developer, FLC Group, is busy finishing up work on a $159 million resort with hotels, golf course, a conference center and an amusement park in the central coastal city of Quy Nhon. The luxury resort is scheduled to open in the second quarter of this year.