China’s hotel transactions lure investors seeking to ride a rebound in tourism as vaccination gathers pace

·3-min read

Investors are snapping up more hotels and service apartments in mainland China, betting on a rebound in tourism as the government pushes for faster vaccination and wider reopening of the economy.

The value of hotel transactions amounted to US$1.3 billion in the first six months this year, a 54 per cent jump from the same period a year earlier when the Covid-19 pandemic froze appetite for deals, according to real estate consultancy JLL. China led activity in Asia-Pacific, along with Japan and South Korea, it added.

China’s economy is expected to grow 8.5 per cent this year, according to the World Bank, with most cities managing to beat back the pandemic without any cases for months. The government has vaccinated 40 per cent of its population up to end of June, among the highest rate worldwide, and aims to achieve 70 per cent by the end of 2021.

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“We’ve seen huge pent-up travel demand in the post-Covid-19 era,” said Lucia Leung, associate director of research and consultancy for Greater China at Knight Frank. “The bustling domestic tourism [industry] has become an important engine of the recovering hotel market.”

Shanghai continues to be the top investment destination among the 12 hotel transactions tracked by JLL, with the nation’s financial hub contributing one-third of the volume.

Zhongrong International Trust sold its Lanson Place Jinlin Tiandi in Xintiandi shopping neighbourhood for 1.35 billion yuan (US$209 million) in February, while asset manager Jiecheng Capital paid Ascott Residence Trust 1.05 billion yuan for Somerset Xu Hui in Shanghai, a 32-storey service apartment with 168 rooms, in May.

The biggest deal during the period, however, involved a luxury-hotel apartment in Beijing. New-York based Tishman Speyer and its Chinese partner Shanghai Dowell Trading shelled out 2.05 billion yuan for the asset in January.

“Older hotels with repositioning or conversion angles continue to be sought-after by domestic and foreign investors alike,” JLL said. The firm predicts transaction volume for China will exceed US$2 billion this year, “which is back to pre-Covid levels”.

An aerial photo taken on June 20, 2021 shows people walking on a glass skywalk in Zhangjiajie in central Hunan province. Photo: AFP
An aerial photo taken on June 20, 2021 shows people walking on a glass skywalk in Zhangjiajie in central Hunan province. Photo: AFP

China recorded 230 million domestic trips during the seven-day Labour Day holiday from May 1, a 120 per cent surge from last year, according to official data. It matched the trips recorded during the same holiday in 2019, signalling the potential return to normalcy in China’s domestic tourism industry as soon as Covid-19 is contained.

“We forecast an explosive surge in tourism demand and it could be even higher than in 2019,” said Fang Zexi, an analyst at the research institute of travel service platform Trip.com.

More hotels could be put up for sale as the country’s cash-strapped developers pare assets to reduce debt. This has developed some urgency since August last year when the government unveiled its so-called “three red lines” on leverage to stem risks to the financial system.

“Developers affected by the three red lines policies may face pressure to offload noncore assets such as hotels to improve their balance sheet, therefore driving sales activity,” said Tan Ling Wei, vice-president of Greater China at JLL Hotels & Hospitality.

More hotels are coming under sales negotiations in Shanghai and more transactions will be expected to be completed in the second half, analysts said. The four-star Jiulong Hotel along the Bund, owned by developer Greenland, could be sold in the third quarter, Tan said.

“Shanghai continues to be a major focus for investors due to its established tourism and financial infrastructure,” Tan added.

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