Overseas firms look to China’s hotel sector

Overseas investors are showing an increasing interest in China’s hotel sector in the lead-up to the 2008 Beijing Olympics, according to hotel industry executives. But a lack of understanding about the Chinese market still remains a major obstacle for foreign investors, admitted the executives from Jones Lang LaSalle Hotels, a leading worldwide service provider in the hotel and tourism sector.

“China will be one of the largest, if not the largest, economies worldwide, and more people from home and abroad will visit and experience China,” Andreas Flaig, executive vice-president and head of the hotel group’s China arm, told China Daily and reported by Asia Pulse.

“That is why foreign investors are showing increasing interest in owning hotels in China, employing capital here to enhance future growth.”

China’s gross domestic product (GDP) reached 18.23 trillion yuan (US$2.23 trillion) in 2005, the fourth-largest in the world, and an increase of 9.9 per cent year-on-year. Its GDP is expected to remain on a stable but fast track, or grow 9 per cent this year, said Qiu Xiaohua, head of the National Bureau of Statistics, earlier this month.

China’s hotel markets in Beijing and Shanghai also experienced good trading in 2005. In Beijing, five-star hotels witnessed the highest average daily revenue (ADR) of 1,204 yuan (US$150) and occupancy rate of 75.3 per cent since 1994, and the highest revenue per available room (RevPAR) of 907 yuan (US$113).

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Shanghai is still the preferred investment location, given its position as China’s financial centre. In 2005, ADR for Shanghai’s five-star hotels saw a record high of 1,649 yuan (US$206), as did RevPAR, which first climbed to 1,200 yuan (US$150) in 1993.

Besides the major cities, interest from foreign investors in China’s emerging secondary cities including Dalian, Tianjin, Guangzhou, Shenzhen and Sanya, is also increasing.

“They expect to take advantage of being the first to move there, thanks to considerable increases in room rates and long-term appreciation,” said Flaig.

Flaig predicted China’s hotel investment market would not be much different before and shortly after 2008, especially in Beijing, the host of the 2008 Olympics.

According to a report entitled the “Hotel Investment Outlook 2006” launched by the company on Tuesday, Beijing is one of the fastest-growing markets in the Asia-Pacific region, with RevPAR increasing by approximately 32 per cent last year.

“The Olympics is a catalyst. It could promote Beijing to the world to a great extent, helping China showcase its best parts, and this may lead to more hotel investment transactions,” said Flaig.

“There is a bright future for China’s hotel market (to attract foreign investors),” said Scott Hetherington, managing director of Jones Lang LaSalle Hotels Asia-Pacific.

Developing an understanding of the market is the most important step, according to both Flaig and Hetherington.

The opening of the Chinese market remains in its infancy, and procedures surrounding foreign investment mean a transaction that might take one year to complete, with regulatory approvals potentially taking six months, according to the report.

But Hetherington says this situation “has changed in the last four to five years.”

Over the last decade, Shanghai has developed a reputation as an investor-friendly city with less red tape and procedural delays. Investors are now familiar with the process in Shanghai and are likely to take another 12 to 18 months to understand Beijing’s process, the report said. It claimed investors still prefer the cities of Shanghai, Beijing and Tianjin.

“Transparency is also a major issue holding back foreign investors whose decision is based on data. If the data provided is not available or not reliable, they would hesitate to invest,” Flaig said.

“We could see change in three to five years,” he added.

The head of the hotel group’s China arm suggested foreign buyers be more flexible and co-operative, and more importantly, try to get good advice from a consultant.

“Good advice could help them get a reasonable assessment of the value of what they would like to buy, as some sellers are not reasonable in making pricing expectations on the background of China’s fast-growing economy,” he said.

The company set up its China office in Beijing in early 2005 with eight staff; its business covers 15 cities
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