Singapore conglomerate Hong Leong Group has said the next part of its regional growth plans will involve budget hotel projects.
It is looking to avoid the high costs of entry in saturated markets like Shanghai.
However, Hong Leong said while it welcomes the cooling measures in China to avoid a bubble, their full effect on the market is yet to be seen.
China’s cities are expanding and pushing up land costs in major centres. To counter that, hospitality players like Hong Leong are pulling budget and business hotel offerings away from the gateway cities.
Kwek Leng Beng, executive chairman, Hong Leong Group Singapore, said: “In the case of Shanghai and Beijing, the land cost has gone up very high. If you want to create this kind of concept, the cost per key will be high.
“And there is a lot of oversupply now in Shanghai and Beijing, and hence you don’t want to go to a place where a price war could be going on for years.”
Instead, Hong Leong is targeting third-tier Chinese cities, which it believes are under-served by the business and budget segment.
Hong Leong is also staying away from other hot markets like Vietnam, where high inflation is limiting margins.
For more developed markets, it is aiming for more affordable projects just outside city centres, like its Studio M hotel in Singapore.
The group expects room rates in Singapore to rise by some 15 per cent by the end of the year, boosted by the economic recovery and the arrival of international events like the Youth Olympic Games.
But the group is cautious about China’s tightening measures to control its property market.
Mr Kwek said: “You will not realise how effective it is because there is a time lag. So advocating to prevent the bubble is something that I am for, but pressing the button once too many may be something one has to be careful about.
“Otherwise, the engine will stall and the car cannot restart again and will take a longer time to recover.”
Hong Leong said it is also exploring the possibility of purchasing 3 to 4 star hotels in Japan.
Source : Channel NewsAsia – 17 Jun 2010