Vietnam's top property developer Vingroup has started construction of an island resort at an estimated cost of VND19 trillion ($870 million) off the northern port city of Hai Phong.
To take five years, it would have villas, a golf course, an entertainment park, an eco-park and a cable car in an area of more than 870 hectares on Vu Yen island, Vingroup said in a statement.
Late last year Vingroup opened a five-star resort in world heritage site Ha Long Bay that cost VND1.2 trillion.
Vingroup is one of many companies that have increased their investment in hotels and resorts, mostly in coastal localities, contributing to the recovery of the property market after a prolonged slowdown caused by the 2009 global financial crisis.
Another property developer, FLC Group, is also building a luxury resort complex with a golf course in the central coastal city of Quy Nhon.
The VND3.5 trillion ($159 million), 300-hectare property will have a six-star resort, hotels, a five-star restaurant, conference center, and amusement park when it opens in the second quarter of this year.
A thriving economy, a growing middle class, and easier policies to boost demand among expats for homes in Vietnam and attract foreign visitors have spurred the hotel and resort market.
With the economy growing relentlessly at over 5 percent for long, the size of Vietnam’s middle class is expected to double in just seven years from 2013.
Since early last year many hotels and resorts involving investments of hundreds of millions of dollars have mushroomed in coastal regions like Quang Ninh and Hai Phong in the north, Thanh Hoa, Da Nang and Khanh Hoa in the middle, and Phu Quoc Island in the south.
Khanh Hoa Province, home to Nha Trang Bay, is expected to add 2,800 four- and five-star hotel rooms this year, according to the provincial tourism steering committee.
After booming until 2007-08 the real estate market went into a slump amid the economic downturn.
Buyers and developers defaulted on loans leaving banks crippled with bad debts and unable to lend to tens of thousands of businesses. Many half-built residential buildings, office blocks, resorts could be seen strewn around cities.
The property market has recovered since late 2014, helped by a thriving economy. The country's economy grew at 6.68 percent last year, the fastest rate in five years, according to the General Statistics Office.
Together with the apartment segment, resorts and hotels too are expected to attract both local and foreign investors in 2016, Marc Townsend, managing director of property firm CBRE Vietnam, said.
Thailand's ONYX Hospitality Group has signed an agreement with Vietnam's HB Group to manage a US$1.5-billion resort that is being built in Hoi An. OZO Hoi An, a 364-room beachfront property, will spread over an area of 400 hectares in Cam An Ward and Dien Ban town south of the famous town. It will also have a shopping mall, dining and recreational facilities, residential apartments, and villas, with the hotel set to open this year end.
“Vietnam is one of the region’s fastest growing travel destinations, and we are excited to have OZO Hoi An as part of our continuing expansion plan," Peter Henley, CEO of ONYX Hospitality Group, said.
Tran Ngoc Chi of property firm Cushman & Wakefield Vietnam said the hotel and resort market is expected to grow strongly in the coming months, adding that with rising incomes, more locals are ready to pay for four- and five-star hotels now.
The number of households in Vietnam with assets of $100,000 to $2 million would soon be among the fastest growing in the world, Reuters quoted the Economist Intelligence Unit as saying. Vietnam’s GDP per capita reached US$2,109 in 2015, according to the World Bank.
In an explicit gesture to attract more international visitors, Vietnam has offered visa exemptions for single-entry visits of up to 15 days for visitors from Germany, France, the UK, Italy, and Spain.
It has also allowed overseas Vietnamese, or Viet kieu, their foreign spouses and children to visit Vietnam without having to apply for a visa.
The occupancy rate at four- and five-star resorts in Phu Quoc Island is often over 90 percent, according to CBRE Vietnam.
Investors build resorts not only to rent out rooms to vacationers, but also sell villas in the complexes. The buyers are only expected to increase in number after Vietnam eased property laws last year.
The Housing Law was amended last July to allow foreigners with valid visas, international firms operating in Vietnam and foreign investment funds to buy residential properties. They are allowed to own a property for 50 years and can extend the period by another 50 years.
There is no limit on the number of units a foreigner can buy as long it is within the overall cap for foreigners in a neighborhood.
Rudolf Hever, executive director of the Ho Chi Minh City-based Alternaty Real Estate Service Company, said he has seen increasing interest in tourism property projects from both individual investors and foreign investment funds, with many foreign investors looking for a second home in these projects.
The international buyers that have bought in Vietnam tend to gravitate towards well-established branded projects, according to the UK’s Financial Times newspaper. At the InterContinental Sun Peninsula Resort in Da Nang, a beachfront four-bedroom villa with two pools is on sale for £3.28m, through Luxury Property Da Nang. In southern Vietnam , CBRE is selling a three-bedroom villa with a pool at the Sanctuary Residences in Ho Tram for $385,000 with a 5 per cent two-year rental guarantee.
Most foreign investors showing interest in the market are from Asian countries like Japan, South Korea, Thailand, and Malaysia, Hever said.
While this may sound promising, there is still a warning that the combination of new resort projects and unsold inventories might lead to oversupply.
Hever said the demand from expats for a second home, despite increasing in recent months, is not yet steady.
The tourism sector has not developed well enough to support the growth of the hotel and resort market. Some 7.94 million foreigners visited Vietnam last year, down 0.2 percent from 2014, which was the first annual decline since 2009.
Transportation, tour guides, and entertainment options are not good enough to attract tourists, Nguyen Cong Hoan of travel company Hanoi Redtour said.
"Our infrastructure and services are not good, which dissuades foreign tourists from returning to Vietnam or recommending the country to others. Vietnam is one of those countries that see few foreign visitors returning."
Another drawback, he said, is the lack of cooperation between operators. He cited the examples of Singapore and Thailand where inbound tours are priced low because of solid intra-sector cooperation and operators earn more from other services that visitors use.
But in Vietnam tour prices are high because transport operators, hotels and restaurants, and travel agents do not work together, he added.
Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, said the government needs to quickly recognize the importance of the sector to Vietnam's growth and development and review its policies and increase its budget for destination marketing and development of tourism facilities.