Foreign direct investment (FDI) in Vietnamese real estate is experiencing strong growth in the past year, and hotel investment is riding that growth. In the first eight months of this year, FDI in real estate was up 58 percent year-on-year, accounting for 13.7 percent of total FDI inflows, according to data from CBRE’s Vietnam office.
Although specific FDI data for the hotel industry this year is unavailable, some of the property investment inflows have been going into the hotel sector. In Q2 of this year, Hong Kong-based Gaw Capital Partners acquired holdings including Indochina Plaza in Hanoi and Hyatt Regency Danang from Indochina Land Holdings for $106 million.
“Foreign investors in Vietnam’s hotel industry form joint ventures with local firms, who tend to be the land banker, and usually employ an international operator,” said Marc Townsend, CBRE Vietnam managing director.
Just over 80 percent of hotel FDI in Vietnam has gone into the five-star segment, with most of it originating from Asian markets including Singapore, South Korea and Hong Kong, Townsend added. Vietnam’s two largest cities have attracted the most hotel FDI, with Ho Chi Minh City absorbing 47 percent of inflows and the capital Hanoi close behind at 41%.
More than 20 international operators manage hotels in Vietnam, with Accor possessing the most diverse portfolio, including urban CBDs and beach resorts. IHG, Starwood and Marriott are also active in the country, where they first entered at the five-star level before expanding into lower-end properties.
Outside of Hanoi and HCMC, the profiles of Da Nang, Phu Quoc and Nha Trang are also rising as hotel investment destinations. Da Nang, located near the middle of Vietnam’s bulging coastline, however, faces markedly different market dynamics than Nha Trang, which is further down the coast, and Phu Quoc, an island close to Cambodia.
“Da Nang has always had the highest number of international visitors, partly due to its frequent and convenient direct flights,” Townsend said. “On the other hand, Phu Quoc and Nha Trang are relatively new tourism destinations with more direct flights launching soon.”
Additionally, Da Nang has a more seasonal climate, featuring a winter, which limits its peak season to 6 months: April through September. Phu Quoc and Nha Trang, however, enjoy more favorable climates and attract a stable flow of visitors year-round. Infrastructure for these and other second-tier destinations such as Ha Long Bay, Mui Ne and new casino gambling center Ho Tram are being improved, offering greater access to visitors from abroad as well as newly monied Vietnamese.
Vietnam is increasingly appealing for hotel investment due to its strong economic growth and its emergence as a Southeast Asian alternative to Thailand, where political problems and violence are affecting arrivals. Vietnamese hotels are also quite affordable compared to other Asian markets, while the market is experiencing a general maturation.
“The quality of Vietnam’s infrastructure and hotels has improved considerably over the last few years, and this has led, and will continue to lead, to a more stable and resilient tourism market,” Townsend said.
In terms of challenges, China is still the largest source of international arrivals to Vietnam, and the two countries have recently had a tense relationship, which has adversely affected the investment climate and growth outlook. There are also limited deal opportunities at present.
For now the big four questions in Vietnam are: valuation issues, transparency, ownership structure and track record. Proactive government policies and continued market maturation should improve these weak spots over time.
In the meanwhile, Townsend noted, the economy at large should receive a boost from Japan shifting its manufacturing investment from China and Thailand to Vietnam, as well as the FTAs that Hanoi is negotiating with South Korea and the EU.
Source: Hotel Management