Is Da Nang the next Phuket or Bali? Many property moguls keen to pigeonhole Vietnam’s fastest developing beach destination reckon Da Nang will one day rival the region’s most eminent coastal holiday hotspots.

Realistically, that day is still around 10 years off. But as the global economy struggles to recover in the wake of the downturn, the Vietnamese city of Da Nang, like many markets in Southeast Asia, continues to move full steam ahead.

Danang

Located roughly halfway between Hanoi in the north and Ho Chi Minh City in the south, Da Nang is the centre for the government-designated Central Economic Zone and Vietnam’s third largest city. The CBD straddles the scenic Han River and is bordered by central Vietnam’s rugged Marble Mountains to the south and west, meandering Hai Van Pass to the north, and the South China Sea to the east.

Da Nang’s China Beach, or Non Nuoc (“Mountain and Water”) as it’s known locally, is one of Vietnam’s most famous beaches, hugging the 50-kilometre coastline from Da Nang’s hilly Son Tra peninsula in the north to the historic UNESCO-listed ancient town and well-established tourist destination, Hoi An, in the south. Forbes dubbed this stretch of pearly white sand “one of the Top Ten Beaches in the World”, an endorsement that certainly hasn’t damaged Da Nang’s public image; and Horwarth Hospitality Consulting has also tipped Da Nang as the “next great beach destination in Asia”. Danang is also within a few hours’ drive of Vietnam’s former feudal capital Hué and the ancient Cham ruins at My Son, both of which are also inscribed on the World Heritage List.

On the right track

Vietnam is the fourth fastest growing tourism destination according to the World Travel and Tourism Council, with its tourism industry contributing 12.4 percent of the country’s total GDP. Unlike many of Vietnam’s aesthetically stunning yet hard-to-reach beaches, Da Nang is easily accessible from Hanoi and Ho Chi Minh City by air, rail and sea, and in addition to these two cities, is the only international port of entry where visitors can get a pre-arranged visa on arrival. The deep port not only supports cargo boats, but also cruise ships.

Danang

While Da Nang’s downtown airport currently only serves domestic traffic, a handful of flights from Singapore and a few trial regional charters, it is currently undergoing expansion with a new terminal planned that will have a capacity of four million visitors annually. Last year, visitor numbers to Da Nang topped the one million mark – most of whom were Vietnamese – and the Vietnam National Administration of Tourism (VNAT) says its main focus for 2011 is promoting the central coast, both domestically and internationally.

Danang

 

Land issues

A strong national tourism industry and Da Nang’s proximity to key cultural heritage sites are certainly helping to drive growth, but there are two more key factors driving the boom: good infrastructure, particularly in comparison with the rest of the country; and a local government, or People’s Committee, that is keenly pro-development.

Generally in Vietnam, buying and developing land involves jumping through convoluted hoops of red tape and it can take years simply to obtain licences and resettle land for development, but Matt Koziora, sales and marketing director at VinaCapital, an investment fund currently developing property in Da Nang, says that provided you have a good reputation and are proposing a quality project, obtaining land for development then setting up and operating a business in Danang are relatively easy in comparison to other regions. The government has also implemented measures to ensure that land is developed and not continuously bought and sold to turn a quick profit.

“Vietnam’s real-estate market has always been highly speculative, and after getting tired of looking at vacant lots, the government issued Decree 72, which forbids landowners from selling the plot without first building a foundation,” Koziora explains. “If anything is left idle for too long – two years is the limit – the People’s Committee takes it back, so the onus is on owner or developer: all property ultimately is owned by the government. It’s the risk developers have to take.”

Location, location

Projects in Da Nang can be categorised as in-city or along the coast, according to CBRE’s “Man in Danang”, branch manager David Scribner. “Office and retail space development has picked up, but on-beach villas and high-end condominiums are currently leading the residential market,” he says.

Of the 10 condominium developments currently under way, seven complexes are in the city centre: Indochina Riverside Towers, Da Nang Plaza, Blooming Tower, Azura, The Summit, Emerald Towers (Golden Square) and Danang Lakeside Tower. Only three projects – Olalani Condotel, Hyatt Regency and The Cham Condominiums – are located by the beach (along the Son Tra-Dien Ngoc coastline).

From the sixth floor of the Indochina Riverside office building, Scribner’s floor-to-ceiling windows provide a perfect vantage point to view the undulating Han River and many of the city’s high-rise developments.

“There’s Danang Plaza, Fideco, Blooming Tower and Azura – which is the first phase of the mixed-use World Trade Centre development – right across the bridge there,” Scribner points out. “Right now there are around 2,200 residential units in the market, of which 1,900 are currently for sale, with another 7,000 to 8,000 planned.

“Development isn’t phased – the timing of projects has nothing to do with the approval process and everything to do with the economy. Smart investors bide their time. But right now a lot of projects are going up and it’s a case of sink or swim together. But that’s a normal developer activity,” he shrugs, nonchalantly.

In terms of visitor accommodation, as of October 2010, there was a total of 2,565 hotel rooms in 30 hotels and resorts in Danang city and along the coast, comprising 839 five-star rooms in four hotels and resorts, 291 four-star rooms in two properties, and 1,435 three-star rooms in 24 hotels and resorts.

Sun, sand and sales

For local and international tourism and the second-home market, the beach is where it all happens. Indochina Capital’s real-estate arm, Indochina Land, is one developer that has been firmly committed to Vietnam for several years. It launched the multi-award winning Nam Hai in 2006 and this exclusive, GHM-managed, all-villa landmark property of 60 one-bedroom villas and 40 pool villas situated on 35 hectares of landscaped tropical gardens overlooking the South China Sea effectively sparked the development boom. It remains one of the country’s most eminent luxury resorts.

The Nam Hai Danang

“Indochina Capital’s managing director Rick Mayo-Smith had worked on the Furama in 1999, which was really the first major project in Danang,” recalls Maya Whiteley, vice-president of Indochina Land.

“Rick and his partner Peter Ryder are notoriously innovative and, truthfully, I think they just loved the beach and saw Danang’s potential as a destination.”

The Nam Hai’s success paved the way for other developments, and as gold price hikes, a limited number of investment options and an underperforming stock market kept investors looking to real estate, developers have been quick to pick up the ball. A slew of slick, sexy launches have been rolled out for numerous luxurious properties over the last few years, prompting the hype surrounding Danang to swell to a fever pitch.

The current supply of coastal property is around 385 units over six projects, comprising a total land area of 370 hectares. Prices range from US$1,600-US$7,000 per square metre, sales have reached 60 percent and with another 1,200 units planned, almost all the land available for resort projects along Danang’s scenic shoreline has been earmarked for development.

Despite the fact that Indochina Land’s Hyatt Regency villas were launched with the highest price range per square metre – from US$2,488 to US$3,942 with a price ceiling of US$1.5 million – they have almost sold out.

Villas in Danang

“I think branding helps a great deal with sales in Vietnam. People expect a lot from Indochina Land as developers, and people have a high perception of the Hyatt brand because of the hotel in HCMC [Ho Chi Minh City],” says Whitely. “The Hyatt Regency was well under construction in September 2010, and at this point, this is the only true branded resort in Danang.”

VinaCapital also recognised that Vietnamese investors are much more likely to buy into a brand so, under its subsidiary Vinaland, it has created VinaLiving. The first real-estate project under this brand was Danang Beach Resort, which occupies a 260-hectare strip of land between Danang and Hoi An. Altogether the project comprises Ocean Villas, a complex of 115 beachfront properties; The Dunes, a small pocket of 15 villas overlooking the Danang Golf Club; the Cham Condominiums and the soon-to-be-launched Greg Norman Estates – a luxury enclave of 33 villas averaging 1,000sqm and adjacent to the 15th fairway of the Greg Norman-branded Dunes Golf Course. With US$500 million in acquired projects throughout Vietnam, 25 percent of which are on this stretch of the central coast, VinaLiving properties have sold quickly because of, Matt Koziora says, their proposition of affordable quality driven by an aggressive pricing policy.

“The right product, for the right price, at the right time. We don’t go ahead until we get a certain rate of return, ensure we give as much money back to our shareholders as possible, and still leave money on the table for our buyers,” says Koziora emphatically.

Savills reported that the asking price for The Ocean Villas ranged from US$475,000 to US$1,836,000 per unit in the second quarter of 2010. These figures rose to US$534,700 and US$2,295,000 respectively in the second half of the year.

“Our buyers have made US$150,000 since purchasing the property, and it says something about the quality of the development that they haven’t sold it on,” says Koziora. “Our timing with Ocean Villas was perfect. There’s very little of this kind of quality product in the market.”

Hitting the green

The development of some highly acclaimed golf courses is also key to Danang’s development. When the first nine holes of the Montgomerie Links (Indochina Land, again) opened in August 2008 before grand opening in April 2010, the course attracted a steady stream of accolades within Vietnam and abroad, including 2009 Nominated Best New Course in Asia by Asian Golf Monthly and 2010 Best Golf Course in Vietnam Asia Pacific in the Commercial Property Awards. Indochina Land has also launched 66 private pool villas on three hectares bordering the highly acclaimed course.

In 2010, VinaLiving launched Danang Golf Club’s Dunes Course, its first 18 holes, which received an honourable mention in US GOLF Magazine’s top 15 courses to open worldwide that year in December. The club’s ultra-slick 3,800-square-metre clubhouse opened in February 2011, and construction on the next 18 holes is already under way.

With two fully operational champion-designed courses just five minutes apart, another at Bana Hills under construction and at least five more planned for Danang and the surrounding area in the next few years, Danang is emerging as a key golfing destination regionally and a considerable driver for the local tourism and property markets.

“When air links improve, we’ll see strong growth in golfing holidays, with more regional golfers coming to Danang for weekends and to vacation,” says Matt Masson, chief operating officer at luxury boutique tour operator Trails of Indochina. “Golfers in Japan, Korea and Taiwan can’t play during the winter months, and the temperate climate along Vietnam’s central coast means you can play all year round.”

 

Balancing act

Is everything coming up roses? Probably not. Occupancy peaked in the third quarter of 2010, with five-star and four-star resorts and hotels in the city and along the coast achieving an occupancy rate of 54 percent and 64 percent respectively. However, with every passing quarter, the overall supply in the market increases. Many more beach hotels and resorts, including InterContinental, Marriott and Hilton-branded properties, will open their doors in Danang and Hoi An in the next three years. And along the coastline between Hué and Hoi An, another 40 projects will supply over 8,000 resort rooms over the next seven years. Without a substantial increase in international arrivals and domestic tourists shifting from budget hotels to three-, four- and five-star rooms, this additional supply will cause occupancy to remain low.

Le Meridien Danang

The same is true with residential villas and condos – exciting launches at the end of 2009 came with limited competition, but now buyers have many options across multiple projects. And with sluggish tourism and hotel occupancy along the coast, Savills projects that annual investment returns from leasing beachfront villas and apartments will also remain low until Danang really makes its mark on the tourist trail.

And while Danang might be one of the most desirable locales for developers keen to invest in Vietnam, things don’t stack up so well when compared regionally. Developers are prohibited from borrowing offshore, and a high interest rate and lack of liquidity pose problems for companies looking to Vietnam-based banks for funding.

“In Singapore, interest rates are 1 percent; in Japan, 0.5 percent. In Vietnam it’s 15 percent,” says Koziora. “A lot of developers talk the talk, but I’d say half of the current proposed projects won’t even be developed.”

Another downside to this system is that a sudden rise in costs can halt construction. In the case of Danang’s sold-out Olilani project, the word on the street is that development has hit problems and work has stopped completely. “Yes, there is a question as to what’s happening, but I can’t really speculate,” says CBRE’s David Scribner. “Sales started before the economic crisis and as so many projects got under way concurrently and demand for labour – and therefore wages – rose, the cost of construction tripled. Ocean Villas alone had 1,300 employees.”

But market factors indicate that despite these obstacles, development in Danang generally will continue at a regular pace. Vietnam’s economy, in particular, continued to grow in 2010, increasing the potential of a new cycle of growth in the market, and most developers are making good on their promises. At the moment, Danang is very much a work in progress, lacking the carefree holiday vibe and diverse entertainment offered by other regional beach destinations. But as development continues and the region continues to grow, in 10 years time, who knows?

 

Business Etiquette

Phil Tran, chief executive of Glass Egg Digital Media

In Vietnamese, there is no “I”, “we” or “you”, but a complex system of pronouns based on gender, age and social status. When doing business with someone of high status, such as a People’s Committee representative, use their full title until the dynamic of the relationship is less formal.

Few Vietnamese businesspeople, government officials or civil servants speak fluent English, so learn a few key Vietnamese phrases to show respect and work with a good translator who knows the pronouns appropriate to the speaker and addressee.

Most Vietnamese businesspeople prefer to meet in person and don’t like to discuss business over the phone, typically because they are concerned about who is listening to the call. So if you discuss a big initiative or a change in a business plan over the phone with your Vietnamese partner, don’t be surprised if they appear non-committal or want to terminate the call early. Don’t read this as a sign that they are not interested. Bring up the subject again in a face-to-face meeting and you will likely get a completely different reaction.

When meeting for the first time, a gift is very important and shouldn’t be considered a bribe. While many people give gifts with clear material value, this is not always the best choice as it will indicate what material gains the other party can continue to expect from you. A gift that shows respect for business partners’ accomplishments or interests, such as tickets for an exclusive concert, is more personal and flattering as it implies that they have good taste and have an appreciation for the arts.

Western businessmen often try to book a very fancy place for that first meeting, whereas Vietnamese can conduct million-dollar deals in someone’s living room or shophouse. Rather than taking them out of their comfort zone, pick a more casual, comfortable place.

Danang

Vietnamese from the north, central region and south differ in their outlook, use of language and demeanour. Always present yourself as neutral, and open to different experiences and ways of doing business in different regions.

Act respectfully, without overdoing it. Allow them to sit down before you do, pour their tea before your own, and so on, without weakening your position in context.

When a deal has been reached, a handshake and mutual congratulations is sufficient – you want to underline the fact that it’s a joint accomplishment, not a “you helped me” scenario. Some people choose to celebrate together on an evening out, and it’s also good to demonstrate that you have taken the time to get to know them a little.