An imbalance of hotel demand and supply in major tourist destinations in Asia is creating a problem of unusually high project prices.
However, the business cycle will finally restore a balance between demand and supply, creating opportunities for investors.
Hotel prices in Asia have increased more than 30-40% on average over the past few years, thanks to an uptick in the tourism industry, and prices are expected to rise further in the future.
Chanin Donavanik, chief executive of Dusit International, a local hotel management company, said investment 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.
“That’s why we could not secure any deal in the past several years although we have tried to take over several hotels in many Asian countries,” he said.
Currently, a four-star hotel in Singapore is priced at about S$1.6 million (41.2 million baht) per room, four times higher than in Thailand. This makes property prices in Singapore as high as in Britain.
Ronnachit Mahattanapreut, senior vice-president for finance and administration at Central Plaza Hotel Plc (Centel), said many hotel deals in the region could not be settled because owners asked to sell their properties at very high prices.
“For us, each property should have its value measured by EBITDA (earning before interest, tax, depreciation and amortisation),” he added.
Centel offered to take over a hotel in Singapore at a price 14 times higher than its EBITDA and but could not get it because another investor offered up to 18 times higher than its EBITDA. In the end, there was no transaction as the hotel owner raised the price beyond the offers.
Centel has found that property prices in resorts and city gateway destinations in Asia are too high. However, the company strongly believes that property and land prices go up and down similar to the economic cycle. For example, property prices in the US have fallen due to lingering economic problems.
Mr Ronnachit said tourism in Asia-Pacific still has room to grow in the next 5-10 years and then it will be Africa’s turn. Many investors have already entered African countries such as Nigeria and Kenya.
“For Africa, it depends on the vision of each executive. For Asia and Asean, I think the right time for investment will belong to people who wait,” Mr Ronnachit said.
Vietnam has had a difficult year, but green shoots are emerging. Deals will be opportunistic, but not priced as an absolute steal, as banks have shown little willingness to write down debts. Investors remain interested in Indonesia, but the market lacks liquidity as most assets are family owned, said JLL.
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