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Possibilities emerge

Released at: 02:30, 28/10/2014 Hospitality Sector

Possibilities emerge

Mr Akshay Kulkarni, Cushman & Wakefield Hospitality Regional Director in South & South East Asia, shared his thoughts on Vietnam's hospitality sector with VET's Ha Anh.

by Ha Anh

What is your overall assessment of Vietnam’s hospitality market? 

I think it is a market of great interest and over the last couple of years more and more tourists have begun to explore the country. This is not surprising at all, since there is always a new destination people wish to explore when they tire of visiting the same places. With Vietnam, however, added interest comes from the fact that there is history and also a lot of heritage that can be explored. With connectivity improving and also more areas of the country now becoming accessible other than the usual Ho Chi Minh City and Hanoi, it does seem that Vietnam is poised to become a key tourist destination and that will not only boost the existing hospitality business but also create new opportunities. Business travel is increasing and this will also support hotels in the key business centres as well as allow newer types of hospitality products to grow. What is important, however, is that the entire model be based on consistent local demand rather than purely international inbound traffic, as this will move to another destination in a few years. 

How do you view the supply of hotels and hospitality services in the country?

In any emerging market the cycle is pretty much the same. People will build five-star luxury resorts and hotels first. This will be followed by mid-market hotels and there will finally be a good mix that will cater to all segments of the market as the market matures and there is sufficient traffic across all segments of travellers. If one were to look at hotel supply today it does seem a bit skewed towards the luxury end or the independent, unbranded economy segment, but that should change and there will be a proportionate spread across all segments. There are now about 12,600 keys in Ho Chi Minh City compared to 40,000 in a Kuala Lumpur and 56,000 in Bangkok. So there is enough scope to grow as the market grows and so does demand.  

What do you think about the prospects for Da Nang’s hospitality industry compared with other markets such as Phuket or Bali?

Da Nang is a very nice destination, especially given its proximity to the old imperial capital of Hue, Hoi An ancient town, and the My Son relics. These are places people would like to visit and they can use Da Nang as a base. As a beach resort it may have serious competition from some of the other centres but combining the beach with heritage tours can add to inbound tourist traffic into the city. Compared to Phuket or Bali, however, it still needs time as it must develop as a pure leisure destination. Given its historical positioning as a port town and so one of the three major commercial centres in the country, it has to decide how it wants to position itself. If it is to become a leisure destination on par with Phuket and Bali then its infrastructure must improve and, most critically, connectivity must increase with more international flights coming directly into the city. 

Is Phu Quoc Island comparable to Bali?

Phu Quoc Island is indeed comparable to Bali, but is perhaps what Bali was 15 years ago. One of the things that led to Bali being what it is today is connectivity and also the fact that a lot of visitors who came earlier were actually able to purchase real estate and settle down there. But I definitely think that in the years to come Phu Quoc can become a key leisure destination in the region. It has the natural resources to make it a beautiful tourist destination. All that is required is a clear plan to add sufficient infrastructure and retain a balance between nature and development. 

Apart from the number and types of hotel rooms and infrastructure / accessibility, what other factors influence the prospects for the development of Vietnam’s hospitality sector?

Most critical to my mind in terms of the factors influencing hotel projects is availability of steady funds and, most critically, local clearance regarding permission, licences, building approvals and approvals from all authorities, to ensure that projects can move ahead at the right pace. 

How do you view the potential of the country’s hospitality market for foreign investors?

In terms of hotels and hospitality Vietnam is still not overly attractive to foreign investors because there remains a great deal of apprehension regarding returns on investment. Once there is clarity with regard to repatriation, stable lending rates and the ability of investors to justify returns versus these factors then the market will see a lot of funds coming in since there are large amounts of capital waiting to be deployed in the region, especially where there is an upside. With the current situation in terms of supply and growth one does believe that this market is poised for a lot of growth and investment in the near future. 

There are many investors from the US, Russia, and Israel paying interest in and investing in hospitality in Phu Yen and Nha Trang. Do you think Vietnam is a new destination for other investors beside the traditional Asian investors? 

As I mentioned earlier, there is a lot of interest. Capital is willing to move in provided there is transparency and clarity. Some people who are able to take higher risks or are able to justify investments through gains in terms of larger longer-term projects or a piece of the larger infrastructure opportunity or some other form of gain would be willing to invest in asset building and creation along with other related interests. 

From 2008 to 2010 there were many major investment projects in Vietnam’s hospitality market. Why do you think this was the case?

The market was new to a lot of people, there was hope that the economy would take off and grow at above par levels, and also the entry barriers were lower. This motivated a lot of people to invest. However, one sees that those people have not necessarily made the returns they wanted. So a larger return is now required to justify an investment in Vietnam. 

What do you think about the timeshare model in the hospitality sector?

Timeshare normally works in a very mature market where legal recourse is very strong. In emerging markets it seems difficult to get a product that is sound legally and also where the resolution of any disputes is easy. Markets that support timeshare also need to have sufficiently large demand, where people definitely want to go more than once and where supply is lower than demand. 

How would you assess the role of hotel/hospitality operators in hotel/hospitality projects?

I think the operator’s role is critical to the success of a hotel. The operator not only defines the level of service but also the type of returns an owner can make. A lot of people think it is easy to run hotels but it is not. Independent or non-branded hotels eventually need to associate with some brand or other in order to benefit from brand promise and positioning and also consistency in the delivery of service levels. 

Would you care to make any suggestions regarding improving Vietnam’s investment climate in order to attract more foreign investors?

I think the greatest effort needs to be made towards ensuring that there is transparency and clarity in investment norms and equally important is the sharing of these norms with the outside world. I think a lot of people hold back due to a lack of knowledge and not necessarily because they don’t believe in the market. One hundred per cent foreign direct investment in hotels/hospitality should be allowed.

What do you think about the casino business in Vietnam?

I am not sure if the gaming business is really what Vietnam needs. It can be a huge revenue earner but I think there are only so many casino destinations that will work. There also needs to be great accommodation and entertainment before people will go to these places for gaming.

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