Vietnam Coastal Locations Revisited Part 1

Vietnam Coastal Locations Revisited Part 1

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Mark Gwyther, Managing Director
Vietnam

The Vietnam Resort Report by Mark Gwyther provides insights into Vietnam’s coastal tourism for developers and investors located outside the country. If you are unfamiliar with Vietnam’s coastline but are considering an investment its well worth your while to consider subscribing. This is an excerpt from the July 2013 edition of The Vietnam Resort Report. To subscribe send an email to info@mgtmanagement.com

 

Introduction

Vietnam has over 3,200 km of coastline, which is the sixth largest amount in Southeast Asia[i].  Interestingly enough, according to The Development Advisor website (www.thedevelopmentadvisor.com), the country ranks second only to Thailand in Net Tourism Coastline (NTCL), which is defined as the coastline being frequented by local and international tourists.[1]

  • Vietnam and Thailand have nearly the same amount of coastline.
  • Vietnam and Thailand have nearly the same amount of Net Tourism Coastline.
  • Thailand has 3 times more international arrivals and significantly more domestic tourists.

Obviously much of Vietnam’s NTCL is not fully developed yet.  Compared to Thailand, Vietnam’s coastal tourism locations are still in their infancy.  Choosing the right coastal location for investment is much more difficult in Vietnam and the risk vs. reward is far greater.

Phu Quoc Island

We did not cover Phu Quoc in our original report, and this island could easily be the subject of an entire issue by itself.  The future of this island, located in the very southwest corner of the country, is the most difficult to predict of all the coastal locations in Vietnam.  Phu Quoc could turn into another Phuket, with international resorts lining the year-round warm beaches.  The influx of new Russian and Chinese tourists to Thailand has led to Phuket’s airport hitting maximum capacity[2].  Even with a new terminal, the single runway cannot handle more airplanes than the current rate.  If we imagine a future where there is a single Visa for Vietnam/Cambodia/Thailand, then flights from Bangkok to Phu Quoc’s new international airport could be an alternative to flights from Bangkok to Phuket.  Phu Quoc is actually 150 km closer to Bangkok than Phuket is.

On the other hand, it is not hard to imagine Phu Quoc becoming another Vung Tau, with locals crowding into cheap mini-hotels off the beach and locally owned and managed two and three star resorts on the beach.

More than 2,900 rooms in 98 hotels currently populate the island.  However, only 600 of those rooms even have a star rating.  All are locally owned and managed with the exception of the M Gallery (Accor).  In 2012, 400,000 visitors arrived on the island, an increase of 14%.[3]  Those numbers continue to increase and local officials feel they need 3,000 new hotel rooms in the next two years to meet this new demand.   Two significant issues are affecting new development on the island.

  1. Phu Quoc has had a large number of speculators and private investors purchase prime land in hopes of selling it at a higher price in the future.  However, land prices have not increased on the island and those with the Land Use Rights do not have the capital to develop.  This is complicated by the country’s banking crisis which has made capital for new real estate development extremely hard to obtain.
  2. Large projects such as the Starbay Dai Beach (Millennium Group) have not gotten off the ground because of the terrible land clearance problems and a very ineffective provincial government.

 

These problems are being addressed.  Vietnam’s Central Government took the unprecedented step of appropriating the island away from Kien Giang Province, and giving it its own administrative organization.  The new administration is evaluating projects and requiring deposits from developers to show their commitment[4] and taking land away from those who do not begin construction. Recently, 93 different investment licenses were cancelled with a total area of 5,500 hectares[5].  Among these was the largest proposed development on the island: the Trustee Suisse Group / Vinaconex project that hadn’t even started land clearance, despite receiving an investment license in 2007.[6]

 

Our Thoughts:

Developers and investors need to seriously think about Phu Quoc as a potential investment now that the local government has taken back so much land.  Other projects might be desperate to get their investment back before the government takes their land, so prices have to be low.  As we described in our Blueprint for Investment, most good coastal land near an international airport has already been allocated to investors.  Phu Quoc may be one of the few exceptions now.

Demand is already increasing and an international airport will be able to receive close to 3 million arrivals by 2020.  With Chinese and Russian tourists crowding out Europeans and other tourists traveling to Phuket, Phu Quoc is perfectly positioned geographically to receive the overflow.

On the other hand, significant obstacles still exist and the future of the island is very unclear right now.  Besides the beach, few cultural and entertainment attractions are nearby.  Being an island, the cost to build and utilities will be higher than in other locations in Vietnam.  Finding qualified staff on this island will also be difficult.  Finally, of all coastal tourism destinations in Vietnam, the provincial government has been by far the worst in helping investors and fulfilling promises on infrastructure.  Whether that changes now will make a significant difference to investors.

[i] In order; Indonesia, Philippines, China, India, Malaysia, Vietnam, Thailand, Myanmar, Sri Lanka,  Timor Leste, Cambodia, Singapore.

 

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