Welcome to The Vietnam Resort Report, March 2014 issue.
This month’s report is inspired by two news reports that would seem to pose a dichotomy between Vietnam and the rest of Southeast Asia.
The first article appeared in the Bangkok Post and led with the sentence “An imbalance of hotel demand and supply in major tourist destinations in Asia is creating a problem of unusually high project prices.”
The very next day an article from Thanh Nien News in Vietnam led off with “Hundreds of projects, mostly resorts, have been abandoned for years along Vietnam’s central and southern coast”.
Growth in international arrivals to Vietnam increased by over 33% for the first two months of 2014 after solid growth in 2013. During discussions with executives from Pegas/Anh Duong- one of the largest travel agents bringing foreigners to Vietnam- they commented that a big shortage of rooms in south Vietnam (particularly in Nha Trang, Ninh Chu Bay, and Phu Quoc) exists.
Over the next two months, we will look at this contradiction and try to determine what is actually happening and why. In this issue, we focus on the assumption that viable resort projects along the coast are actually sitting idle and vacant. Cam Ranh Bay is a good place to start.
Vietnam’s “Abandoned” Resort Projects Part 1: The Cam Ranh Peninsula March 2014
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Vietnam’s “Abandoned” Resort Projects Part 1: The Cam Ranh Peninsula The Vietnam Resort Report – Mar, 2014
Introduction There is no doubt that Vietnam’s coastline is seeing a great influx of tourists. Already in the first two months of 2014, international arrivals are up above 33% and that is being led by Russians (who visit the southeast coast) growing 70% and Chinese (who are increasingly choosing the central coast) above 50%. We talked with executives of Pegas/Anh Duong (a leading Russian tourism company expecting nearly 200,000 visitors to Vietnam) and they complain about the shortage of decent rooms in Nha Trang, Ninh Chu Bay, and Phu Quoc. These same outbound markets are causing resorts and resort projects to increase in value throughout other countries in Asia. The chief executive of Dusit International, a Thai hotel management company, says demand in resort or gateway destinations is “20 times higher than supply. Global investors are entering to find potential deals in Asia due to the region’s bright tourism prospects.”1,
According to Vietnamese news agencies and real estate brokers, it is not happening here. One day after the quote above was published in the Bangkok Post, the Vietnam newspaper Thanh Nien News announced “Vietnam seaside tourism projects left to rust”.2 According to that article, in Binh Thuan, 155 of 403 tourism projects with licenses have not been started. Only 29 out of 94 projects on Phu Quoc have been completed or even started. Other projects finalized land clearance years ago but still have not started construction. So the big question remains, why isn’t growth in international arrivals leading to higher valuations for resort projects as well as undeveloped coastal land being purchased and developed for tourism.
As a communist country, all of Vietnam’s land essentially belongs to “the people” and not private individuals or companies. The country’s bizarre and complicated land laws, lack of transparency, a dearth of public real estate markets, prohibitions against foreign investment and ownership, and a terrible banking crisis for the last few years have all contributed to Vietnam’s prime coastal locations being under-utilized. In next month’s issue, we will investigate these reasons and determine if they are temporary or permanent.
But first, in this month’s issue we establish whether the assumption that coastal resort projects are at a stand-still, is true or not. Our focus will be centered at the Cam Ranh Peninsula, which we predicted a few years ago would follow the development path of Danang, albeit a few years behind. Resort projects near this area should be viable.
1 http://www.bangkokpost.com/breakingnews/395559/hotel-demand-hikes-prices 2 http://www.vietnambreakingnews.com/2014/02/vietnam-seaside-tourism-projects-left-to-rust-locals-have-no-sea- access/#.Ux18cfmSw9p
www.mgtmanagement.com Binh Thuan (Phan Thiet / Mui Ne) Before a detailed look at the Cam Ranh Peninsula, let’s address the Binh Thuan numbers. Vietnam news outlets tend to recycle stories and base their information on anecdotal evidence rather than statistics and actually investigating. A reporter driving their motorbike who sees several empty plots of land may make an assumption that later proves statistically inaccurate.
Those familiar with our newsletter should be inquisitive when reading that 155 tourism projects in Binh Thuan (Phan Thiet/Mui Ne) have not been started. As we wrote before, under Vietnam’s Mineral Law, underground titanium must be fully exploited before any architectural structure can be developed on the land. The province identified a 1,250 square kilometer zone of titanium right in the middle of the tourism localities. The deputy secretary of Binh Thuan’s Party Committee estimated that over 100 tourism projects are frozen because of the titanium mining issue.3 So it is difficult to tell if the reason is due to mining laws or the developers’ inability/unwillingness to begin construction.
Additionally, both a recent legal battle between a developer and the province and a brewing battle between existing tourism developers and a titanium mine that destroyed their business expose why developers might be hesitant to start spending money on construction. We have not done a detailed analysis of the cause of non-started tourism projects and the titanium mining, but our intuition is that the overlap is pretty great. Of course some land speculators are sitting on plots of land that they cannot afford to develop (see Part 2 next month), but the uncertainty about the mining might be scaring off sophisticated investors and developers; making land transfers difficult.
Nha Trang The article about “rusting” resort developments briefly mentions the Rusalka-Champara Resort in Nha Trang as an example. Anyone acquainted with the background of this resort knows it can hardly be used as a typical example to any larger issuei. In fact, Nha Trang is in much greater danger of over- developing than having land sit idle. In a recent surprise announcement, the province allocated 80 hectares of prime beach land (thought to be reserved for public spaces) to Hoan Cau Company (owner of Diamond Bay Resort). This prime land is south of the Tran Phu Bridge and on the ocean side of the road. It will be used for a 40-floor hotel and a 45-floor apartment building. As one environmental scientist put it, “the latest plan will finalize the bay’s death sentence”.4
Ninh Thuan Another example used in the article is the Binh Tien Tourist area in northern Ninh Thuan Province (30 minutes south of the Cam Ranh Airport). The project was licensed in 2005 and Intercontinental Resort Group signed on to manage the flagship resort (one of five in the plan). When we are asked what large Vietnam beach resort project we would want to own, this is the project that tops our list. The beach is the best in Vietnam when considering weather, ocean, and sand. It is also closer to the Cam Ranh
3 http://english.vietnamnet.vn/fms/travel/58306/titanium-mining-upsets-tourism--wind-power-projects.html 4 http://www.thanhniennews.com/society/vietnam-province-to-further-destroy-its-beautiful-bay-24135.html
www.mgtmanagement.com International Airport than Nha Trang is. While slightly further from the airport than the Cam Ranh sites, the beach is far superior to Long Beach.
Due to delays in construction, the government reportedly threatened to take the license away several times. Work has finally started (despite clearance being finalized years ago), although they are still just preparing the infrastructure.
Construction work on Binh Tien Beach Tourist Area
Binh Tien Beach
This seems like a pretty solid example of a project “rusting away”. However, it is important to understand that the new coastal road that connects the resort to Highway 1A and the airport is still not completely finished, and just recently became passable by car. If the resort had been operating when it was supposed to, the only way to bring customers would have been by 4-wheel drive vehicle over a goat path through a mountain pass. The road project was supposed to be completed in early 2012.
Cam Ranh The Cam Ranh Peninsula provides a better litmus test as to whether resort land is really sitting idle. By our count, eighteen resort sitesii line the 12 km stretch of beach is near an airport. Cam Ranh has great year-round weather and is fairly close to a major city. Nearly a year ago I drove around the peninsula looking for indications of development and could hardly find any signs other than signs. I repeated the
www.mgtmanagement.com exercise this month to see if anything changed. Resorts are listed from north to south (Nha Trang to the airport) using my best estimate. The name on the sign to identify the resorts is used below, even though some of the signs are for management companies (e.g. The Westin) rather than the ownership group. These could possibly change in the future or perhaps have already changed.
Long Beach, Cam Ranh, Khan Hoa
Mia Resort Not exactly on the peninsula, Mia Resort has been open for several years. The reason it is listed is that construction recently began on the second phase; over 30 residences set on the hill and beach.
Mia Resort Signage and construction
Operating resorts that expand are good indicators that business is excellent and demand is expected to increase.
www.mgtmanagement.com Golden Bay
Not really a resort, Golden Bay is a residential development on 79 hectares of land across the street from the ocean.
Golden Bay 2014 2013
Without any raison d’etre until the other resorts open, obviously the owners of Golden Bay are moving slowly. Their business plan is to develop a small city near all the other resorts for residences, 2nd homes, nearby employees to live, and tourists to shop. Right now they are working on the roads and moving dirt around to look busy, which is what they were doing a year ago.
Flower Resort Across the street from Golden Bay towards the north end of the peninsula, the Flower Resort happened to have their groundbreaking ceremony the day I passed by. While this may seem like an important step towards development, those who have been in Vietnam understand a project may have several groundbreaking ceremonies spread over a few years. Inviting government officials provides a chance to demonstrate the project is progressing.
Groundbreaking ceremony at Flower Resort
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However, it appeared that some construction work in the background had been started. A year ago, only a sign indicated a resort was going to be built.
East Sea Luxury Resort
The resort next door is much further along. The progress has all been made in the last year. The frames of many structures are up and work looks to be progressing fairly rapidly.
Russian Cam Ranh Development Corporation This development is just a sign and a cheap fence. No work was being done from what I could see. It is very possible that this is the project which used to be owned by Mirax, the huge Russian real estate development company that went bankrupt during the recent financial crisis.5 Complications with the ownership structure could be the reason it is not further along.
5 http://vnre.blogspot.com/2011/11/mirax-cam-ranh-resort.html
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Riviera Resort (owned by Hoa Binh) Coincidentally (?), this was another resort that happened to be having their groundbreaking ceremony the day I drove by.
Located a couple hundred meters from Flower Resort, the Riviera seemed to have made significantly more progress. From what I could see, the roads were started and many palm trees were growing in a cluster ready to be moved. Construction materials and equipment were all around, so the groundbreaking ceremony was most likely to signify the start of actual building.
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Hyatt Regency Cam Ranh Bay A much larger project just to the south of the ones listed above, this particular resort has Hyatt branding on the fences and gates.
It appeared work was being done- at least with the infrastructure and landscaping. However, this was a true a year ago as well. I couldn’t see any structures, but they may have been behind the large sand dunes. They have been growing palm trees since my last visit a year ago.
Empty Sites By my count, at least three sites had no signage and no construction work.
2014 2013
We also noticed the Cactus Cam Ranh Resort had no signage this time. The Cactus Resort land appears to be for sale on a website, but it may have already been sold or taken back6. We are not sure whether it was sold to one of the developments mentioned in this report, or if it is one of the empty plots.
6 http://123nhadat.vn/du-an-cactus-cam-ranh-resort-spa-pj1430
www.mgtmanagement.com Ocean View The resort most likely to open after The Sea Lion (see below), Ocean View has made significant progress. Many buildings and villa structures make it obvious the project is under construction. However, no landscaping has been started and it is probably at least a year away still.
Ruby Resort This development has a sign, a nice wall, and absolutely no indication at all that any work has been started. I even took the time to walk up hills to take a look and could not see a single piece of equipment or any indication of construction. Once again, this land has not changed in the last year.
www.mgtmanagement.com Manna Resort A large sign and a fence with some pictures of what the resort could look like. However, no work is being done and not much has changed since I visited a year ago.
Cam Ranh Bay Resort This future resort is an empty plot of land with a little activity in one corner. However, the presence of dump trucks and a back-hoe indicate that the work being done might really be taking sand from the site to sell elsewhere.
www.mgtmanagement.com Swiss Viet Resort This small resort has several villa frames that are nearly finished. They line an impressive beach wall, making the place seem as if it is on its way to completion. Some of this construction was actually taking shape a year ago. Also, the grounds and other parts of the land have not been touched, so work may be progressing but it is going pretty slow.
Ocean Window Resort Perhaps the project that best exemplifies the issues with Vietnamese resort land (more on this next month), this resort is owned by the company/person who owns Eurowindow- an importer of windows from Europe.
They were among the first to plant their sign on the peninsula, and still no indication of construction, other than a cheap wall.
www.mgtmanagement.com Military Land A huge track of land in the center of the beach appears to be controlled by the Vietnamese military. This is most likely the land that the Russian government has asked for to build a “resort” for their “vacationing” military personnel7. It’s too early to tell what will actually happen with this land.
From a distance, it looks as if some serious work is being done in preparing the land for development. However, upon closer inspection it appears they are digging up sand and using it somewhere else. That is our guess.
“Development work” on the military-controlled land
Dessole Sea Lion Resort Nha Trang The Dessole Sea Lion Resort will be the first resort to open on Cam Ranh’s Long Beach. Dessole resorts are a sister company of Pegas Touristik, the travel firm responsible for bringing close to 200,000 Russians to Vietnam in 2014. Obviously this is a chance for the company to vertically integrate in
7 http://english.vietnamnet.vn/fms/special-reports/91674/review-2013--when-russia-is-back-at-cam-ranh.html
www.mgtmanagement.com Vietnam and it nearly guarantees the occupancy rates will be high. Pegas can also use their partner’s (Anh Duong) vehicles and excursions to provide guests entertainment further outside the resort than nearby Cam Ranh.
The resort, when fully completed, will have 315 rooms on 12 hectares of land close to the airport. The tower will open first. It will be 4-star. The company also owns a resort in Mui Ne.
The Westin It appears The Westin signed a management contract to manage a resort on the large space nearest the airport. Judging by the sign, the owner may have changed over the last year (although it could just be the wind?)
2013 2014
Whoever does own the property hasn’t started any work in the last year. A nice wall and security booth were built several years ago, but no work has begun inside the walls. The empty security booth, a few
www.mgtmanagement.com broken down pieces of equipment and the ripped sign make it pretty clear no work is expected to start anytime soon.
The empty Westin site
Cam Ranh Summary
Fence Ground- Structures Nearly Military Unmarked/ Only Work Started Complete Done Owned Unowned Cam Ranh Resorts 6 4 3 1 0 1 3
Of the 14 clearly marked sites on Cam Ranh’s Long Beach, about half have had some new work started in the last year. Six (nine if you add empty sites) have had no work done.
Developers are in a very tricky situation with high stakes. Most obtained their land several years ago when it was either cheap or allocated in an inefficient manner by the government. Little doubt remains that the land will eventually become much more valuable; after the airport is upgraded and the peninsula adds activities and entertainment options for guests. This appears similar to the situation in Danang/Hoi An back in 2009-2011. However, two key differences create investment risk in the short-term. First, unlike Danang/Hoi An, absolutely zero tourists stay in Cam Ranh right now. Danang’s coastal resorts could “steal” market share from other hotels in Danang and especially Hoi An. Even places like Ninh Chu Bay receive a million tourists per year so that new resorts can seize market share rather than create a new market. Of course Cam Ranh resorts can target visitors heading to Nha Trang, but that leads to the second big issue. Cam Ranh peninsula is completely undeveloped and offers no interesting activities, hospitality businesses, culture, or even local flavor. Danang’s beaches are nearby three UNESCO World Heritage sites, Marble Mountain, and Hoi An- one of the most popular cities for foreign tourists in Asia. Danang also had golf courses open early. Cam Ranh resorts will have to develop as places that offer everything for their customers, or provide constant shuttle service to Nha Trang.
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On the other hand, not building may lead to loss of the land. Already the provincial government is pushing developers to begin construction and open soon. News stories like the one mentioned at the beginning of this report adds more pressure.
So in the end, developers are waiting as long as they can and then building as slow as possible; each hoping the other resorts open first and create a market. The Dessole Sea Lion will be first, but it won’t help the others since their customers will come from their own tour agency. The rest are playing a game of chicken.
Conclusion The key question investors, provincial governments, and media should be asking is whether viable resort projects sit idle, and if so, why. We know a lot of projects along Vietnam’s coast are under-capitalized and “owned” by speculators rather than developers. However, it is our opinion that it may be over- stated. Many projects have been started or re-started recently and many others have real reasons for not starting.
The Cam Ranh Peninsula is a special case. A chicken or egg situation - between needing customers before development and customers not staying because of no developments - complicates matters and being first has very little competitive advantages and plenty of disadvantages. Resorts like The Dessole Sea Lion (with a customer base) and The Hyatt Regency (strong international brand) will most likely have to open first, followed by some of the locally owned resorts (domestic market). Eventually, a critical mass will grow and be fueled by the airport expansion. It appears that won’t be for several more years.
Next month we’ll discuss other factors that may inhibit higher valuations and transactions in Vietnam which do not exist in other SE Asian countries.
In the News this Month:
Travel Firms Using Foreign Guides will lose license: VNAT http://www.thanhniennews.com/travel/travel-firms-using-foreign-guides-will-lose-license-vnat- 24587.html
Perhaps the Vietnam Government just does not want tourists. That’s the only way that this new rule makes any sense. The kicker is the comment “tourism companies have to hire local tour guides who can at least speak English and the head of a foreign tour is responsible of interpreting it for any tour members who don’t speak English.”
www.mgtmanagement.com Does VNAT not read its own tourism statistics? The fastest growing markets are China (0.8% English speakers), Russia (5.5% English speakers)8, and South Koreaiii, with two being at the top of total number and Russians coming on strong. All three countries have a low percentage of English speakers. Three hundred thousand Russian tourists and only 70 Vietnamese guides that can speak any Russian in Khan Hoa. I am curious about how many Chinese speaking guides there are for the two million Chinese.
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i Rumors of Jail, mafia, drugs, etc, etc, etc ii We’ve included the project sites that have no signs, and also sites owned by the military. Not included in the 18 but listed below is Mia. We could very well be off by a few, as it is pretty difficult to differentiate the sites. iii I could not find specific percentage of English speakers in South Korea. However, most sources said a relatively high percentage (about 50%) learn some in school, but when tested later their proficiency is extremely low compared to other Asian countries. Estimates are that less then 10% can actually communicate in English.
8 http://en.wikipedia.org/wiki/List_of_countries_by_English-speaking_population
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