Vietnam authorities pull plug as hotels delayed due to cash crunch

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A resort under construction on a beach of Nha Trang resort town

With investors struggling to raise funds amid the economic slowdown, many resort and hotel projects have stalled and ended up having their licenses withdrawn.

The "Asia Pearl" is one such project. Kien Giang Province authorities recently withdrew the license they issued to the Trustee Suisse Group and state-run construction group Vinaconex six years ago after the two failed to begin work on it.

The US$2.7 billion urban-tourism-financial complex project on Phu Quoc Island was expected to be completed before 2010.

The authorities had sought a plan for land compensation and resettlement of local residents by February 2012 at the latest, and a detailed master plan by August. With the investors failing to provide them, the administration decided to pull the plug.

Than Thanh Vu, vice chairman of the Vietnam Tourism Property Association, said 257 resorts and hotels have been licensed in Phu Quoc since 2008 but only 20 have got underway.

"The delays in tourism projects can be found across the country and cover mainly the hi-end and medium-end segments," Kenneth M. Atkinson, managing partner at auditing and business consultancy firm Grant Thornton Vietnam, said.

"Localities that have suffered long delays include Hai Phong, Hue, Da Nang, Nha Trang, Phu Yen, Phu Quoc, and also Hanoi and Ho Chi Minh City.

"There are several interrelated reasons as to why projects have been delayed and licenses have been withdrawn.

"I think in some instances the size and scale of some projects were poorly thought out and one also has to question the quality of the feasibility studies that were prepared.

"Many projects were way too ambitious and because of the size and also the global financial crisis were unable to attract investors or lenders."

But vice chairman of the Vietnam Construction Federation, Pham Sy Liem, said the lack of capital is not the most important reason for the stagnant market, but the moderate number of visitors.

If demand is high for resort and hotel rooms, investors would find ways to raise funds, he said.

Tourism arrivals are falling in Vietnam while neighboring countries are seeing record growth.

In Vietnam, the number of international arrivals fell 1.4 percent between January and May this year to 2.9 million, according to the General Statistics Office. However, it is becoming increasingly obvious that the country's tourism numbers are not reliable.

 "In Vietnam occupancy and/or room rates are generally falling in the four- and five-star segments with some exceptions like Da Nang," Atkinson said.

Poor transportation is another reason for the situation. Vu said even in places that have an airport investors find it hard to proceed with their resort and hotel projects because roads, electricity, and running water systems are not in place.

He also gave the example of traveling the 200 kilometers from HCMC to Mui Ne, which takes six hours by road.

Atkinson said: "[Investors] often fail to take into account transportation links and infrastructure.

"Mega projects are being licensed in places like Phu Yen which has only a small airport with limited capacity.

"I believe the responsibility for this is not just down to the authorities but also, in some cases, the investors.

"Very often the licensing authorities do not have the experience or skills to properly evaluate the commercial and financial viability of large projects and also the licensing process lacks transparency so there are many self-interest groups involved."

Recovery

The situation may be difficult, but not too serious, Liem said. Some major projects are scheduled to be inaugurated soon, he said, citing the example of the Grant-Ho Tram Strip, a group of integrated resorts in the southern province of Vung Tau. The first resort is schedule to open next month. The Las Vegas-style project, situated some 127 kilometers from HCMC, is estimated to cost around $4.2 billion.

The market could recover when the economy rebounds, he said.

Echoing Liem, Atkinson said: "The tourism property market will recover when there are some significant changes in the dynamics of the tourism sector."

However, there are also some fundamental issues that need to be addressed and these include a robust marketing plan for Vietnam and an adequate budget to support the plan, he said.

Vietnam's budget for destination marketing is less than $1 million, which is a fraction of that of Cambodia, Thailand, Malaysia, and many others, he said.

"I think that overall the market will remain subdued with exceptions like Phu Quoc and Cam Ranh.

"Both have airports which can receive international flights and both have great tourism attributes, so there is an opportunity for more flights to keep pace with room supply."

The governments needs to urgently recognize the importance of the sector to Vietnam's growth and development and review its policy for the sector including an increased budget for destination marketing, development of tourism facilities, allowing foreign second home ownership, and either instituting a true visa-on-arrival system or at least extending visa waivers, Atkinson added.

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