Looming bankruptcy
Just a year ago, at the height of the tourist season, the hotel business in Hanoi’s Old Quarter was considered a highly lucrative one, with hotels full to the brim with foreign tourists. Neighborhoods around these hotels were buzzing with people and shops and other tourist related businesses and services stayed open until 2 am in the morning.
This is now sadly a past receding dream and another tragic picture is fast immerging. Just a few hundred meters from the Hoan Kiem Lake, along Hang Be Street, a place which once was bustling with foreign tourists, an owner of a small hotel is hanging up a for sale sign on his door. His hotel with an area of 102 sq. meters, across five floors with sixteen rooms is now for sale for VND 69 bn. As an alternative, he is also offering to rent the first floor for VND 70 mn a month, and the other four floors for VND 90 mn a month. According to the hotel owner, as there have been no occupants for the last few months and he does not know how to start a new business, he has no choice left but to sell off his hotel.
A recent survey showed that there are many small and large hotels along Hang Bac, Hang Be, Hang Dau, and Hang Gai Streets that have remained closed since the Covid-19 pandemic broke out in the beginning of the year. Some other hotel owners have restructured and converted their premises to other forms of businesses or services, while many hotels have completely removed the signboards from their front doors. A majority of these smaller hotel premises are often on lease and businesses have borrowed from banks to operate the space to provide accommodation for foreign tourists. After the Covid-19 pandemic suddenly erupted, all such businesses suffered with heavy losses, and many businesses cannot afford to continue to keep the hotels open and running, forcing them to return the premises back to the owner or sell their property altogether.
The prevailing situation does not apply only to the smaller hotels in the Old Quarter, but many bigger brands in Hanoi are also for sale. The five-star Grand Vista Hanoi hotel on 23 floor levels with 170 rooms and covering an area of 1,500 sq. m. is for sale for VND 1,000 bn. Similarly, the five-star Atlanta hotel spread across sixteen stories and set on a prime location at 49 Hang Chuoi Street in Hai Ba Trung District is also for sale for VND 480 bn.
Some hotel owners say that tourism in Hanoi has its own unique characteristics. If other localities offer tourism resources such as landscapes, beaches, and luxury resorts to attract foreign and domestic tourists, Hanoi offers a unique and quintessential mix of culture and history. Therefore, when international tourism activities froze, it affected both travel tours as well as the hotels. During the first and second quarters, many hotel businesses cut costs, reduced staff and temporarily shut down to tackle the slowdown caused by the pandemic. However, when this situation continued on to the third quarter, many businesses felt exhausted and unable to cope further and many now are near the brink of bankruptcy.
No signs of recovery
Many hoteliers now admit that it has become extremely difficult to cope and because few want to take further risks, selling out is being seriously considered as the best option to recover capital. Currently, the Covid-19 pandemic is still complicated and the Hanoi tourism market is showing no signs of recovery. According to the Hanoi Department of Tourism, for the last seven months, tourist arrivals to Hanoi were estimated at 6.13 million, down 63.3% over the same period last year, with international tourists numbered at one million and domestic tourists at 5.13 million. Particularly in July, the average occupancy rate of one to five star hotels was around 34.14%, up only 4.96% compared to June and down 30.6% over the same period in 2019. In the last seven months, the average hotel occupancy was estimated at 32.74%, down 37.16% over the same period in 2019.
A report by Savills on the Hanoi hotel market in the second quarter of 2020 shows that the hotel business in Hanoi is still reeling under the Covid-19 pandemic. From the beginning of the year until now, the hotel occupancy has decreased by 52% compared to the same period last year. Accordingly, the room rate also decreased by 24% compared to 2019 and further decreased by 14% from the previous quarter. Currently, the price of a five-star hotel room is only about USD 85 for a one-night stay, which converts to about VND 2 mn.
Professor Dang Hung Vo spoke with Saigon Investment about the current hotel business situation in Hanoi, and said that this is a very difficult time for all hoteliers. Whether or not the hotel market in Hanoi recovers early or not depends greatly on foreign incoming tourists. Due to the widespread fear of the Covid-19 pandemic, it cannot be determined when the country will open to foreign tourists again. Meanwhile, most businesses that have borrowed from banks to invest in hotel construction are facing difficulty and are unable to repay both principal and interest, leading to huge risk of becoming bad debtors of banks.
Professor Dang Hung Vo believes that by borrowing from banks to continue to save the hotel businesses is very risky and difficult, for both hotel owners and banks, who perhaps will be hesitant to give the loan in the first place. What should be done at this time is that banks gracing loans must reduce interest rates for failing businesses, as it is also very difficult to call for help from the Government because this is not a priority sector. Therefore, the solution now is that businesses should link with each other to form associations and support each other to maintain operations, and try best to hold on until the pandemic ends.
