Hotel investors ignore hurdles, flock to booming Vietnam

Da Nang, Vietnam

Vietnam is poised for sustained growth as it transitions from a low-income to middle-income economy. Its middle class is expected to double in size in the seven years beginning 2013. This, combined with beautiful beaches, buzzing cities and a unique culture and cuisine have made the Southeast Asian country a prime destination for international hotel investment.

On April 14, South Korean securities firm Mirae Asset Securities announced that it would purchase the Kaengnam Hanoi Landmark Tower in the Vietnamese capital of Hanoi. Mirae will team up with investment company AON BGN to acquire the building, which includes the InterContinental Hanoi Landmark 72, for $350 million. The 359-key hotel is one of the world’s highest hotels, occupying floors 61 through 71 in Vietnam’s tallest skyscraper.

Cause for Optimism

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.

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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. 

Across the country, new construction is not able to keep up with demand, however. Dung Duong, an investment analyst at CBRE Vietnam, said that supply would remain tight for the foreseeable future.

“In the last few months we’ve received more and more inquiries regarding hotels, but the supply in the market cannot meet demand,” Dung said. “With greater amounts of investment coming in from foreign countries, 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.

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