Resort real estate continues post-COVID recovery

November 12, 2022 - 07:00
Domestic tourism rebounded well in the first ten months of the year, with 91.8 million domestic arrivals, exceeding 85 million in 2019, according to Savills Việt Nam.


While domestic tourist number have outstriped those from 2019, international tourism is still down. Photo

HÀ NỘI — The resort real estate market in Việt Nam has recorded impressive growth in domestic tourism, but international tourism has not recovered as expected.

Domestic tourism rebounded well in the first ten months of the year, with 91.8 million domestic arrivals, exceeding 85 million in 2019, according to Savills Việt Nam.

The return of international guests was underwhelming, though, with only 2.3 million arrivals in the first ten months of 2022, equal to only 16 per cent of same period of 2019. Russia and China are key source markets, and political and COVID disruptions mean these guests have yet to return. 

In 2022, South Korea will be the largest source, with 620,000 arrivals or 26 per cent of international arrivals. On the other hand, there have been strong upticks in Indian arrivals, with 82,000 arrivals, representing an average monthly growth rate of 51 per cent.

"The hospitality industry is transitioning. We will witness short-term difficulties, but this will deliver long-term improvements, especially in transparency, the quality of products, and management," Mauro Gasparotti, Director of Savills Hotels Asia Pacific, said at Meet The Experts, a conference on the development of hospitality and branded residences on the real estate market held in Hà Nội on November 10. 

"The recovery for coastal resorts has been slower than anticipated because of the limp international demand. However, several luxury and boutique resorts have performed well, showing that high-quality management and products pay off, especially in market weakness. In addition, several hotels in HCM City and Hà Nội have recovered with encouraging results from business travellers, long-term guests, and MICE groups."

Mauro added: "Besides the slow recovery of international demand, the large pipeline of projects that are under construction is a threat because they will add additional pressure on rates and occupancies. We expect 47,000 hotel and condotel keys to enter in the next three years. However, the current credit room control might delay some of these projects."

Matthew Powell, Director, Savills Hanoi, commented: "Branded residences, as a property sector, has proved incredibly resilient in the face of global uncertainty and change. The sector has not only survived the disturbance but continues to thrive." 

"Over the past ten years, the sector has grown by over 150 per cent, and the pipeline of future branded residences remains strong, with future projects set to double current supply offerings by the end of the forecast period."

"Emerging markets are set to benefit with brands looking to expand their global footprint to new markets seeing high levels of economic growth and wealth generation. Key locations for brands can be found in emerging cities and resort locations, particularly in Asia, South America, and the Middle East, where new high-net-worth buyers are looking for primary residences and second homes within branded schemes." 

"Việt Nam market for branded residences is continuing to expand, especially Việt Nam urban and resort market very strong potential. There is live interest for brands to enter a new market and look for new locations to grow their portfolios. Same for developers who are also looking to develop in this sector. Younger customer base, affluent, globally-mobile individuals will continue to drive demand for branded residences," he further shared. 

The conference also stressed the associated risks of poorly planned projects. The failure to hand over projects on time or with the expected financial commitments has impacted the appetite for the second home market.

Nearly 75 per cent of operating condotel and branded residence projects fulfilled their guaranteed returns. However, amid diminishing demand from key source markets and increasing supply, existing projects with impractical financial commitments are struggling.

Mauro said: "Condotel products started to boom in 2016. Buyers were optimistic about the exponential tourism growth, and these products presented potential capital gains and revenue streams. However, the Covid knock means projects are now grovelling to deliver the expected returns. Smaller projects are proving to be more profitable with better capital gains."

"Condotels are still good products, but buyers should be fully aware of rewards and risks. Hospitality is notoriously more volatile than other asset classes. Poor planning and execution could create complications because the project will not be able to compete with other projects. In addition, profitability is jeopardised when hotel facilities are not properly planned, the product is incorrectly positioned, or if the developer does not prioritise future management," he continued.

The pandemic and market downturn mean industry stakeholders have had time to reflect on what has been done right and what could be improved for enduring and sustainable growth. With the market's potential, it is time to ensure products are suited to the future. VNS