Search

×

Vietnam: ‘Everything is a lot easier’

Vietnam hospitality investment is starting to heat up after several years of lukewarm interest among foreign investors. The key reasons include a relaxation of rules surrounding foreign ownership of real estate, the government’s investment in airports and other infrastructure, growth in international airlift and low-cost carriers, an easing of visa policies, a rising middle class and a return of Chinese visitors.

A “Vietnam Revisited” forum on Monday in Singapore organized by Mayer Brown JSM, Horwath HTL and C9 Hotelworks heard the common refrain that “everything has become a lot easier” with investing in the hospitality and leisure sector in Vietnam. However, there were also cautions on expectations of fast returns, quickly done deals and full transparency.

Figures presented by Horwath’s Jonas Ogren spoke for themselves. Of 90 hotel deals (22,807 rooms) tracked since 2007, 23 were terminated, 25 were delayed and the average project time was 6.4 years. Since then, only 23 had opened, their average project time being 2.9 years as some were conversions. Nineteen are still ongoing.

Most transactions in recent years have been domestic deals. Responding to a question of whether transactions are being done with foreign investors, Mayer Brown JSM’s Andrew MacGeoch said, “Actually, in the last six to nine months there is a foreign investor who is acquiring hotels – we can’t disclose – and we know of others who have come to market and are interested to buy. Hence, we got this seminar on as we really do see particularly the private equity sector looking at this market.

“But you do need patience,” MacGeoch continued. “Having said that, there are investors that have come in and made money in a short period of time; it can be done. But most of the time, you need to think of it as a mid- to long-term (investment).”

Since July 1, 2015, foreigners with a valid residential visa, plus foreign companies and international organizations, are allowed to buy residential real estate in Vietnam. Permission is also granted to those considered to be making significant contributions to the nation’s development.

Bill Barnett of C9 Hotelworks said the reforms in 2015 had spurred overseas interest in condominiums and landed properties, especially among overseas Vietnamese. He added that whereas before, there was no depth of middle class in Vietnam – the trigger for the property market – “there is a middle class now and it is rising – they want to have houses, townships, etc., and that will define the market. Don’t forget, too, that 60% of Vietnamese are under 35; they will be buying real estate eventually.”

Barnett cautioned investors against comparing Vietnam with other markets, say, Thailand. “Phuket is everyday tourism, while sunny days in Hue are less than 50%. We can’t draw comparisons – Vietnam is like Vietnam; it has its own characteristics,” he said, pointing out too that integrated resorts there have yet to deliver the promise as gaming has failed to materialize growth.

Meanwhile, Ogren gave the following key facts and figures:

  • Vietnam has a population of 95 million, 34% in urban areas, and its economy is growing at a 5% to 7% pace.
  • Arrivals stagnated to 7.9 million international visitors in 2015, affected by a drop in the China market due to political conflicts in the last couple of years. However, Chinese travelers are returning. (The latest figures from the Vietnam National Administration of Tourism shows the country has already received 40% of the Chinese arrivals that it had for the whole of 2015 (1.78 million) in the first four months, or 789,450 Chinese arrivals January – April.
  • Domestic arrivals totaled 57 million last year.
  • There are 3,260 hotels with 165,000 rooms, excluding bed and breakfast accommodations. Of this, 19% are in Hanoi, 21% in Ho Chi Minh City and 13% in the Central Coast. Less than 10% are branded.
  • Another 53 hotels with more than 13,800 rooms “that we know about” will open in the next few years. Among them, 4,200 rooms are in Danang; 2,000 in Hanoi; 1,900 in Nha Trang; and 1,100 in Ho Chi Minh City.
  • Average occupancy rate overall in 2015 was 64%, up 4.3% over 2014.
  • ADR in the first quarter was US$129, up 0.4%.
  • The Central Coast is “the star” for investing, with RevPAR up 16.2%.
  • While Danang is established, it is still developing and seeing strong arrivals (31% and 17% increases in international and domestic arrivals, respectively, in 2015) and upsides such as a new airport terminal in 2017.
  • Phu Quoc also has potential as it has visa-free zone status, new airport and other infrastructure improvements and great climate. But downsides include a lack of international airlift, a lack of tourist attractions and “significant” new hotel supply.
  • Ho Chi Minh City is “sunny/partly cloudy” (airport constraint a factor), while Hanoi is “sunny” with “moderate” new supply coming into the market and occupancy trending up in the past five years, although “a little” at the expense of rate. As the cultural and political hub of Vietnam, Hanoi also has corporate demand.
  • A market sentiment survey shows 91% of respondents believing AOR would go up in Ho Chi Minh City this year; 80% in Hanoi and 100% in Central Coast.
  • 91% of respondents believe ADR would rise this year in Ho Chi Minh City, 50% in Hanoi and 100% in Central Coast.
Comment