Vietnam has attracted $12.54 billion in foreign direct investment (FDI) this year, a year-on-year decrease of 78.6%, with two thirds of the money pouring into the tourism and real estate sectors.

The Ministry of Planning and Investment’s Foreign Investment Agency said $7.67 billion had gone to 583 newly-licensed projects in Jan-Sep, down 85.7 percent year-on-year, and the remaining $4.86 billion to 168 operational projects, up 7% year-on-year. Hotel and restaurant services have set a record with almost $4.57 billion followed by real estate with $3.65 billion and processing and manufacturing with $2.53 billion.

In hotel and restaurant services, $758 million has been invested into 22 newly licensed projects and the rest into seven existing projects, according to the department. Foreign investors believe that Vietnam’s real estate market will warm up gradually by the end of this year or early next year. However, they think it is time for investors to learn about consumers’ tastes and make investments.

The processing and manufacturing sector has provided $2.53 billion in capital, including existing projects that have been allowed to raise their investment by $608 million.

According to the agency, with 24 newly-licensed projects and 11 projects with increased capital, the US tops the list of 38 countries and territories investing in Vietnam this year followed by South Korea, Hong Kong, the UK and Singapore.

Ba Ria-Vung Tau province is leading the country in FDI attraction with $6.66 billion in 15 projects, followed by Binh Duong province with $2,45 billion in 103 projects, HCM City with $1.l4 billion in 267 projects and Hanoi with $383 million in 200 projects.

This year’s FDI disbursement is estimated at $7.2 billion, 88.9 percent of the amount disbursed in Jan-Sep of last year. This puts Vietnam on track to achieve $10 billion in actual FDI inflow this year.

Vietnam targeted new pledges of $20 billion this year, 70 percent less than last year’s $66,4 billion. Foreign investment inflows, along with overseas remittances, are a key source of foreign exchange helping Vietnam offset its trade deficit.

New pledges this year have plunged 85.7 percent from last year to $7.67billion, but Phan Huu Thang, head of the agency, was quoted as saying this was still a positive figure, given the global economic crisis.

BANGKOK – The Mekong Tourism Coordinating Office included an interesting story, sourced from the Vietnam News, in its latest newsletter.

The item revealed that ?Phu Quoc Island will become an economic and “eco-tourism hub” by 2030, subject to agreement by locals.

Regional planners say they plan to develop key areas of Phu Quoc including urban, forest protection, tourism and transportation and expect a significant population increase from the current 100,000 people to 530,000.

Phu Quoc is the largest island in Vietnam covering an area of 59,300ha with two towns, Duong Dong and An Thoi, and eight communes. It is known for its pristine beaches and forests.

According to the report, authorities say 40,000ha will be reserved for urban areas.

The main tourism areas will be located in the so-called “golden land”, and include the island’s best beaches.

Other projects would include ports, industrial parks, golf courses and a casino.

All neatly wrapped up, it seems, under the guise of an eco tourism project. (travelmole)

Indochina Land Holdings and Vietcombank have signed an agreement for a US$39 million loan to finance the development of the US$120 million Hyatt Regency Da Nang Resort and Spa.

Located along Non Nuoc Beach, the five-star resort development is situated on a 20-hectare site and is expected to comprise 200 guestrooms, 174 luxury condominiums and 27 three-bedroom villas for sale.

Source : HVS International

Work on Bai Xep ecological tourism project yesterday was started and expected to finish by 2010.

Invested by HCM City based Sao Viet Tourism Co Ltd, the tourism project covers 25 hectares comprising high class resorts, villas and bungalows with a total cost of 180 billion.

On the same day, Tuy An section of National Road 1A leading to Bai Xep eco-tourism project costing an estimated 352 billion dong invested by New City Vietnam Co Ltd also came under construction.

DANANG – The management unit of Dien Nam-Dien Ngoc new urban area and Chi Thanh Co. Ltd. inaugurated the first phase of the Bong Lai high-class villa area in Quang Nam Province last weekend.Chi Thanh Co. began building the project last year with an investment of nearly VND330 billion. Covering 26 hectares, the project includes 15 villas priced from US$0.8 to US$3 million each, restaurants and tennis courts.

In the 2010-2011 period, the investor plans to build 40 lake-side villas on 30 hectares. The third phase, during the 2011-2013 period, will include 35 villas and a 400-room hotel. (Saigon Times)

Da Nang is fast becoming Asia’s equivalent of the southern hemisphere’s second-home mecca, Australia’s Gold Coast.

After years of lying dormant due to developers’ financial constraints and the world’s economic recession, resorts in the central coastal city has revitalised construction and more are selling second homes.

VinaCapital Real Estate is the latest developer jumping onto the bandwagon, offering 115 villas for sale. The Ocean Villas is part of the 260 hectare Da Nang Beach Resort, an integrated resort community featuring a JW Marriott resort, two l8?hole Greg Norman-designed golf courses, a cultural centre and up to 400 villas.

The Ocean Villas range from two to five bedrooms in size on plots of 500-1,400 square metres and are designed as modern living spaces with views of the golf course. beach and small canals meandering through the site. Three model villas were launched a week ago.

The Ocean Villas will be developed in two phases, with the first one building SO villas on 12 hectares and handover is expected in the third quarter of next year.

Prices range from $375,000?$S71.000 per unit, according to Matthew Koziora, sales and marketing director of VinaCapital Real Estate.

Koziora said Vietnamese could buy villas on a free-hold basis, while foreigners could take out long-term leases of up to 50 years. To date, SO percent of the first phase has been sold with most clients coming from Hanoi and a small number from HCM City. There have been some responses from Hong Kong and Singapore.

“We are concentrating on Vietnamese customers,” he said. “The Vietnamese market is a lot healthier.”

Raymond Moore, head of Savills agency sales in HCM City, said: “Since introducing the Ocean Villas in Hanoi and HCM City in July. We have received numerous enquiries. It shows the strong demand.”

A few minutes drive from the Ocean Villas, Savills has also been selling Hyatt Regency Da Nang Residences, which is offering 174 condominiums and 27 villas for sales. Other developments such as Furama Villas and Olalani are also selling villas and condominiums.

Moore said Da Nang had established itself as a preferred second-home destination in Vietnam with more resorts selling villas and condominiums to Vietnamese.

Robert Elliott, project director of Da Nang Golf Club, added that more golf courses to come on line in Da Nang would create a golfing destination that would rival Thailand’s Phuket or China’s Hainan Island.

The IS-hole Montgomerie Links is the only golf course in the central region at present and Da Nang Beach Resort plans to complete the IS-hole Dunes, late this year, that will cater to buyers and guests of villas and condominiums around the areas.

The tourism property market – including the development of coastal resorts and villas – is primed to explode in the near future, says the head of the Foreign Investment Agency (FIA), Phan Huu Thang.

The country’s natural environment, including a long coastline and fine beaches, promised a strong development of this market, Thang said, but investors would face some difficulties in getting some tourism projects off the ground because they remained new and unfamiliar to the domestic market.

The nation also lacked strong services to support the development of tourist properties, he said.

To promote development, authorities needed to further reform administrative procedures and offer investment incentives, Thang added. The Government also needed a long-term development strategy for tourism properties, including a plan to upgrade transportation and other infrastructure.

A call for foreign investment should be issued to develop transport systems, Thang added.

VinaCapital Da Nang general director Le Minh Phuc agreed, noting that convenient airways and other transportation infrastructure would promote the sales of holiday homes in resort centres of Phan Thiet and Nha Trang to residents of HCM City.

Financing was also lacking on both large scale for developers of projects and on a smaller scale, to enable buyers to finance purchases of vacation properties, Phuc suggested. Favourable systems for providing credit would have a positive impact on demand for tourism properties, he said.

Domestic developers, Phuc suggested, should move more strongly into building tourism properties, as they enjoy advantages of cheap land compared to the land use rentals paid by foreign firms. Foreign firms have greater financial capacity and experience but face higher costs overall, he said.

Thang said domestic firms could improve their projects’ competitiveness by joining forces to create major, high-value tourism development.

While pitfalls exist, Indochina Land has put solid stakes in the ground to lead the hotel charge in a land ripe with potential.

Indochina Hotels and Resorts’ leaders (l. to r.) Peter Ryder, Baron Ah Moo and Rick Mayo-Smith.

It took a cowboy’s posture, a pioneer’s spirit and really good timing to be the first international developer to make inroads into the burgeoning Vietnam hotel market, which, with limited new supply, witnessed RevPAR growth in excess of 30% between 2005 and 2007. Peter Ryder and Rick Mayo-Smith, co-founders of Indochina Capital, Ho Chi Minh City, have been able to raise a lot of cash during a roaring five-year run and, at the same time, learned to be steadfast and resilient in their approach to upscale hotel development driven through their real estate division, Indochina Land (IL).Along with Indochina Hotels and Resorts’ (IHR) CEO Baron Ah Moo, the principals have, perhaps, absorbed a lifetime’s worth of business lessons in a land still so new to Western-style commerce, with multiple infrastructure hurdles, internal financial growing pains and, now, exposure to global financial headwinds. Such are the trials and tribulations facing pioneers as IHR’s hotel performance through June was running about 20% behind 2008’s numbers, according to Ryder. IHR forecasts that this year’s portfolio performance is tracking 10% to 15% below that of 2008 on an EBITDA basis. Those numbers reflect the 19% falloff in international arrivals this year with key markets, including China, Japan and South Korea, dropping as much as 39%.

Ryder, a trained anthropologist and former Wall Street banker who has been toiling in Vietnam for nearly 20 years, had nearly perfect timing in 2005 when he and Mayo-Smith raised a US$42 million property fund, sold the Sofitel Metropole in Hanoi and quickly provided a 20% return. Soon thereafter, as Vietnam’s prospects began to catch the attention of the global investment community and property prices skyrocketed as much as 30% per year, Ryder and Mayo-Smith were able to secure a US$265 million second fund, which helped their team create a beautiful yet still underutilized flagship in The Nam Hai resort managed by General Hotel Management Ltd. in Hoi An; among others acquire a palace hotel and golf facilities in Dalat; develop the nearly completed Six Senses Hideaway resort in Con Dao; build a golf and country club retreat designed by Colin Montgomerie in Quang Nam Province near China Beach; and, most recently, start development on a Hyatt-branded, mixed-use beachfront development in Danang on China Beach. In fact, some experts are calling the Danang beach area the next great Southeast Asia resort destination similar to Phuket, Thailand. In total, Ryder estimates Indochina Land’s hospitality investment at approximately US$300 million.

Now comes the tricky part—managing hotel real estate, as well as commercial and residential property, through a dicey downturn in a still immature market with fund investors hungry for returns. In fact, rumors surfaced earlier in the year that Indochina Capital was seeking an exit from Vietnam as investment became difficult and real estate values diminished. “We have reached an overall agreement with all of our investors, and announcements will come soon about the direction of the fund, but exiting Vietnam is not an option,” Ryder said in mid-July.

Not An Easy MarketA third fund valued at approximately US$150 million also has been raised but not yet deployed as the global economic crisis has weakened demand, values and returns. Some analysts speculate the property market will not rebound in Vietnam for another three years, but Ryder—not one easily deterred or ruffled by the recent turn of events—says his group’s track record speaks for itself and is quite confident about his team’s ability to manage and perform in difficult times. “Most importantly, our exits to date have been very profitable and our projections show attractive returns going forward,” Ryder says.

In fact, Indochina Land is about 50% exited from its first fund, with Ryder expecting another big sale before the end of the year. “We are in good shape. The basic fee income from the funds keeps us comfortable enough—but not too comfortable,” Ryder adds.

Indochina Hotels and Resorts’ flagship Nam Hai resort in Hoi An.

While the ever-confident Ryder says he is starting to look at exits from the second fund, there is still about US$250 million not yet put to work that likely will be spent on for-sale residential products—not hospitality. “The for-sale residential market has legs and is something we have been good at. We plan to focus on what we do well.” In fact, Ryder says a memorandum of understanding has recently been signed on a large residential project in Hanoi.As for the exit from funds, Ryder says, “We are not in a hurry [to exit]. If someone makes us an offer we can’t refuse, of course we will consider it,” he says. “But this is not the best time to be exiting, even though things have recovered significantly from their lows about a year ago.”

Ah Moo believes the Vietnam economy has turned the corner, with financial markets rebounding slightly and lending and liquidity coming back. However, Vietnam is primarily an exporter, and a rebound also will depend on a global recovery. “Real estate lending is no longer a dirty word here,” Ah Moo says. “The interesting dynamic is that local companies are buying international projects being shopped, including hotel projects.” He cites Kingdom Holding’s sale of the Raffles hotel project in Danang, as well as other local companies coming in as joint-venture partners to inject the necessary cash to activate existing projects.

“The internal issues affecting foreign investment have abated and inflows are starting to return, though still constrained by global economic conditions,” says Robert Hecker, managing director of Horwath HTL, Singapore. “So material recovery is not really expected until next year… There are certainly plenty of beachfront sites and projects in the works, but financing has been an issue.”

Ryder says it is a good time for his group to pause with hospitality development and see how the market develops over the next few years. “We think we are well positioned with what we have but must focus on how to make it work—to improve access, whether it is Danang, Dalat or Con Dao,” he says.

In the meantime, Ryder says the hotel company has been very proactive on the expense side. With the decline in foreign visitors to Vietnam, the sales and marketing strategy for the hotel portfolio has shifted, focusing on the domestic market to drive occupancy through aggressive pricing and promotional campaigns. Domestic travel within Vietnam during the second quarter remained robust, and across the portfolio IL reports witnessing a significant increase in the percentage of guests originating from within the country—both Vietnamese nationals and foreign residents. Early indications also point to a positive fourth quarter. “We are suffering less than a lot of our competitors, but it is a tough market,” Ryder says.

Critics Chime InWhile Indochina Land is doing work to ride out the global downturn, it is not without its critics who point to poor execution on acquired properties, questionable site selection and concerns about the viability of golf operations in Vietnam. Ryder is quick to respond on all points, and that includes whether or not IL is feeling any pressure from its lenders or investors.

“Our investments are not heavily geared (total borrowings of US$35 million on approximately US$1 billion asset values) and, therefore, our debt exposure is very limited,” Ryder says. “In fact, we are seen as a preferential borrower and our onshore reputation and relationships with our financial partners is so strong that, as liquidity returned to the market after Vietnam’s domestic credit crunch in 2008, we were able to secure two of the largest real estate-associated credit facilities in 2009—US$44 million for Indochina Plaza Hanoi, a mixed-use residential development, and US$39 million for the Hyatt Regency Danang Resort and Spa.”

Ryder adds that on a portfolio basis within each fund, the businesses are cash-flow positive (after debt service). “Most important, we have never missed a debt service payment and are current with all of our (limited) borrowing.”

What about investor anxiety? “They are, of course, being rigorous with their due diligence and asking the right questions,” Ryder says. “However, the sentiment amongst our investors is that Vietnam’s long-term growth potential outweighs the current downturn in the market, and the country’s GDP in the first half of 2009 not only outpaced the world average but all other Southeast Asia nations.”

Ryder adds that unlike other funds, Indochina Capital has not requested additional money from investors and has been able to delay capital draw-downs in certain situations by acting fiscally prudent. “This speaks volumes to the investment community about our ability to manage and perform in difficult times,” he says.

As a developer, Ryder says his group has been quite skillful over the last decade. For example, IL acquired the land on which it developed The Nam Hai in 2002 for approximately US$3 per square meter. “Today, the land would trade for at least US$70 per square meter,” Ryder says, adding that he could point to three other land acquisitions made from the first fund that sold at prices significantly more than they paid.

“Did we overpay for the Dalat portfolio? Probably,” Ryder says. “The market was red hot and we should have exercised more discipline and, yes, we have been stymied in our attempt to expand the development entitlements… As we now refine our redevelopment and exit plans for the Danao portfolio (Dalat, Phan Thiet and Saigon) we remain confident that our investment will not have lost value and, in fact, will result in solid profitability.”

The Hyatt-branded mixed-use development in Danang.

As for overspending on The Nam Hai, which was somewhat intentional as the group positions the property as its flagship, Ryder says it had good years in 2007 and 2008 and will remain cash-flow positive in 2009, despite the big decline in global tourism. “Today, we have a relatively small amount (US$13 million) of inexpensive debt on the property, and we were ahead of the curve by beginning to cut expenses this time last year,” he says.In response to the secluded location of the Six Senses resort, Ah Moo says it is in keeping with the Six Senses criteria and, to date, it has been a successful model for owners. “In fact, given the style of the Six Senses product and services, operating costs are extremely low, yet revenues are in line with 5-star luxury resorts,” Ah Moo says.

IL launched residential villa sales at the Six Senses site in 2007, which were well received at the time, attracting buyers for one-third of the 16 available villas, according to Ah Moo. “While interest has been subdued, we have seen a renewed interest in the project from international buyers, many of which own a residence at another Six Senses property.”

Lastly, Ryder responds to the viability of golf in Vietnam by stating that the government has placed a moratorium on any further golf course development and believes fundamentals truly line up well for private course ownership. “Vietnamese have fallen for golf in a big way,” he says. “Think Japan in the 1960s, Korea in the 1970s and Thailand in the 1980s. Let’s assume only 5% of today’s population could access golf—that translates to 4.5 million golfers. OK, say only 1%, which still equals 900,000 golfers.”

The IL Model

The 43-key Sofitel Dalat Palace was built in 1922 as a summer home for Emperor Bao Dai.

So what is it like being a trailblazer in an emerging market? Indochina Land—along with a handful of other local developers such as Saigon tourist, VinaCapital and Serenity Holdings—has endured numerous detours and delays. Without Ryder’s 20 years on the ground, the outcome might have been much different. “My biggest weakness is that I am myopically focused on Vietnam, and my biggest strength is that I am myopically focused on Vietnam,” Ryder says.The IL model has been to create a hotel with a residential component—not too surprising by today’s lending standards, but nonetheless a requirement.

At the Hyatt project in Danang, Ryder says 100 of the 180 residential units have been sold with the first 10% of hard money put down on 80 of the 100 units. With foundations in the ground, Ah Moo estimates a January 2011 soft opening for the 225-room Hyatt Regency.

IL went with Hyatt, which also will manage the villas and condominiums, because of its strong presence in the region. “They operate the best hotel in Ho Chi Minh City and moved the bar in terms of quality in Vietnam,” Ah Moo says. “We courted them, initially, and got good terms. It helped that Hyatt was more than willing to do the residential with us and has some experience in that area.”

Certainly, IL is not alone in its interest to develop hotels, as during the first half of 2009, half of the US$8 billion in foreign direct investment was hospitality-related. What could make life easier for all developers, say Ryder and Ah Moo, would be accelerated infrastructure investments, including better lift options into the country, especially to resort destinations like Danang and other beachfronts, where access can sometimes require a three- to five-hour ride over poor quality roadways. In addition, to date there is not one direct flight from the United States to Vietnam. “The country is in its infancy of being able to provide quality services, infrastructure and efficient services to mid-level tourists,” Ah Moo says. “We are at the turning point—the fork in the road—for Vietnam if it is going to consider tourism as a true industry that requires investment.”

One issue Ah Moo is dealing with as chairman of the country’s tourism working group is the visa on arrival program, which he calls a farce as visitors still need a “piece of paper” to get into the country. “The government says visas don’t stop people from coming and can’t get past the fact that an efficient system would double or triple visitation. There is hesitation and resistance to change, and opening the country and really investing in tourism.”

On the development side, things like entitlement issues are breaking down and the approach is becoming more professional, according to Ah Moo. “Vietnam is slightly behind China but ahead of India on deal complexities,” he says. “If you have the right partner, access and representation, deals can be expedited in Vietnam. Some things are built in to protect national interests, but we can stand toe-to-toe with India as a good place to build.”

That being said, Ah Moo admits some roadblocks exist where people sit on things to the point where deals die on the vine. “Opportunities elsewhere in the region can get done quicker, so why wait,” he says. “It is an issue of timing and maturation of the market, which will happen. Fifteen years ago there was one real hotel in the country, so we have come a long way.”

Dynamics AheadWhile a lot of concerns remain about hotel development in Vietnam right now, both Ryder and Ah Moo still allude to opportunities in the untapped middle market as most developments to date have been at the luxury end. Ah Moo says a quality product could work at the beaches as well as the city center if you get out of District One. He adds that advanced discussions have taken place with a well-known 3-star brand to help bring them into Vietnam to open multiple units. “One major operator has bit in return for access and development expertise. We are looking at this seriously.”

In the Hoi An area, Ah Moo says IL has rights to several pieces of land along the coast that have great potential but are not yet active. However, he says one potential development there could include a vocational hospitality school to meet the growing need for trained staff. “It would be a good community investment there,” he says.

Ryder also would caution anyone trying to get into the hotel market in Vietnam right now. “There is a fair amount in the pipeline and this being Vietnam, about 20% will actually happen. TIV—This Is Vietnam,” Ryder says. “It is not hard to get a license for a real estate project. It is very difficult to implement, though, and do the 100 things one has to do to get the first nod from the government to open the doors—from clearing the site, design approval, etc. This is not an easy place to operate.”

Will the dynamics change soon? Ryder is not so sure. “It will be difficult for awhile. There are issues that have long been resolved and processes made more transparent only to be matched by new rules and regulations.”

The Six Senses Hideaway Con Dao will have a phased opening, starting in mid-2010.

That being said, a few major hotel projects have been announced in recent months, including Marriott International’s deal with Binh Minh Import Export Production and Trade to develop a 450-room JW Marriott Hotel Hanoi adjacent to the new National Convention Centre. Singapore’s Banyan Tree Group has announced plans to build a US$900 million complex near Hue in central Vietnam which, when completed, will include seven international branded hotels (2,000 rooms), golf, convention facilities and a town center.“There is tremendous potential for arrivals,” Ah Moo says. For example, Siem Reap in Cambodia gets about 4 million annual visitors, while all of Vietnam just barely hit 4 million in 2008. “Domestic demand with 85 million people is just starting to develop. With 90% of the population literate it offers great fundamentals for travel and tourism, as well as general economic growth,” Ah Moo says. “We have been focusing on domestic travel and it has paid off. Still, discretionary income is limited here.”

Eventually, Ryder says, the infrastructure issues will be overcome, but he estimates it might take a good 10 years. He adds that Vietnam’s political stability is a serious advantage in the region. “As long as the government delivers on economic growth and basic material benefits, Vietnamese have a heart-felt urge for stability. It would take a big screw-up to consider alternatives.”

At the end of the day, Vietnam has as much upside as any market and, Ryder says, “maybe more. Costs are low and you still don’t have a whole lot of supply. It is a rapidly growing market with a very young population. The long-term macroeconomic positives translate into a profitable investment.”

The head of planning and foreign investment in Vietnam is predicting that the country’s tourism real estate market will see a boom in five years time and declared he has no worries about exploiting beautiful areas.

Phan Huu Thang is encouraging developers to promote property investment in real estate resorts to foreign buyers as this will be a key part of the growth of Vietnam’s property sector.
‘Investment in real estate has been increasing significantly in the last two years, responding to many changes in the land laws. Foreign investors have shown special interest in real estate projects that will serve the tourism sector,’ he said.

Indeed, real estate is now the second biggest magnet for foreign direct investment with nearly 300 projects currently licensed and total registered capital of $33.9 billion.

Thang described the Vietnam coastline as ‘an ideal setting for luxury resorts’ and said the government is keen to ‘exploit’ the coast. ‘If we can effectively exploit our 3,260 kilometres of coast, 125 beaches, beautiful landscape and cultural heritage, we will be able to build up a tourism real estate market of international scope,’ he explained.
Initially development is likely to be concentrated on beaches from Quang Binh south to Ninh Thuan. ‘Looking further, we can exploit the big potential in other areas such as the Red River Delta, Mekong Delta, the mountains of northwest Vietnam and the Central Highlands area. All these places can be ideal areas for resort development,’ said Thang.

The developments are likely to be chains of villas, resort apartments and villas associated with golf courses. ‘These have become the favourite models. Villas have been designed with features that allow people to relax while staying close to nature. Hill slope, forest and mountain areas, lake or coastal areas are the top choice for resorts,’ added Thang.

But for this vision to be realised developers need to attract foreign money, he explained. ‘Many Vietnamese investors do not follow long term investment plans. They just wait to see the land price escalating and then sell the right to develop a project to foreign investors. Meanwhile, foreign investors do not have the land to carry our projects and encounter difficulties in site clearance,’ he said.

He added that a sub department is to be created to attract foreign investment, particularly from the US, Japan and Asia.(Property Wire)