Though Yangon is moving rapidly towards the milestone of a million visitors a year, investment in Myanmar's hospitality sector has fallen well short of forecast growth, mainly because of speculation-driven land prices.
According to a report by consultancy C9 Hotelworks, foreign direct investment into hospitality assets remains sidelined in many cases with concerns over the lack of a debt market and a slow government approval process.
The primary movements in the broad hotel pipeline are domestic developers and not overseas investors. Of the more than 9,005 hotel rooms in Yangon, about 1,800 rooms or 20 per cent are of international standard. Over the next two years, with more than 3,400 new rooms in various stages of development, the segment could triple in size.
“While the hospitality sector has enormous room for growth, Yangon remains in an early stage of development,” said C9 Hotelworks managing director Bill Barnett. “Most of the deals being done for hotel assets in the current landscape are from local parties and not overseas groups. Given [that] Yangon has captured investor sentiment as a Southeast Asia hot spot, it has yet to deliver on its expected promise.
“Pure speculation is driving land prices to unrealistic levels and the knock-on effect of inflated values for foreign parties contemplating joint ventures with Myanmar entities,” he said.
Land prices in Yangon and other parts of the country have continued to rise at an unrealistic pace, indicative of a surge in large-scale property speculation. Redevelopment of government-controlled properties in the city remains challenged.
Last year, international passenger arrivals at Yangon Mingaladon Airport registered a historical high at 550,654. The top five international markets were Thailand, China, Japan, the United States and South Korea with a combined 48 per cent share of total traffic.
Regional Asian travellers represent the majority of visitors to Yangon, accounting for 66 per cent of the total.
The top two markets are Thailand with a 16-per-cent share and China with 12 per cent. In the first five months of this year, visitor arrivals to Yangon exceeded the entire number in 2012, reflecting year-on-year growth of 36 per cent.
In the first 10 months of 2013, hotels in the city showed an average occupancy rate of 69 per cent, with an average daily room rate of US$170 (Bt5,450), according to the report.
Over the next two years, a total of 3,442 new international-standard rooms are anticipated to enter the Yangon hotel market.
Once new inventory starts entering the supply side, rates will start to normalise and the industry’s challenge will be on growing sustainable demand, Barnett said.
“At the moment the country has retained strong investor interest but converting this into more tangible results is going to take longer than the market has expected.”