Investment rate in Vietnamese hotel sector increases

This is attributed to the lack of land, especially land plots in areas with developed infrastructure and in central business districts, where investors can expect high business efficiency when developing projects.

T, a businessman with dozens of years of experience in managing luxury hotels in HCMC, said position plays a very important role in business. 

The room rate of a 5-star hotel in district 1 is US$20 per night higher than that in district 5. The room occupancy in central business districts is also higher, thus bringing more profit.

That is why hotel developers seek advantageous positions, though the investment rate is much higher.

“It will be worth the investment if you spend 30% more capital but you reach the breakeven point sooner by three years,” T said.

It takes a hotel in the central area 10 years to reach the break-even point, while a hotel in other areas will need 12-14 years.

In the hotel sector, investors have to renovate facilities after 12 years of operation. Therefore, they want to reach the break-even point soon to get money for re-investment.

A real estate broker said some foreign investors are hunting for land plots in advantageous positions to develop hotels as they can see the great potential of the tourism industry. 

Since the investors know it is difficult to find idle land, they buy old hotels for development. The land plots in the most advantageous position of HCMC – the Nguyen Hue pedestrian street – are also destinations.

In Thu Thiem area, there are places reserved for hotel development. However, the area is not attractive because the infrastructure is not good enough. In Phu My Hung area, the infrastructure conditions are good, but it is far from the center.

Hoteliers want to build hotels in district 1 and some areas of district 3, but there is nearly no clean land left.

“The demand is very high. So the factor that determines success is the position,” T said. 

“There are three important factors in hotel development – position, position and position,” he said.

The thirst for land in central business districts and the escalation of the land price in HCMC have led to a higher investment rate in the hotel sector. Twenty years ago, the rate was US$120,000 per room, but the figure now is US$150,000.

According to the HCMC Tourism Department, there are 6,257 5-star and 3,500 4-star hotel rooms.