What’s Wrong with Hainan’s Luxury Hotel Boom

on October 29 2014 | in Travel | by | with No Comments

Hainan China

A popular vacation destination, the tropical Chinese island of Hainan is becoming saturated with luxury hotels, raising market concerns for some experts.

Hainan has drawn huge numbers of domestic and foreign investors since 2010, when the Chinese government announced a plan to build it into a leading international tourist spot over the next decade. Today, the island has 65 five-star hotels, a greater number than the 50 to 60 five-star hotels in first-tier Chinese cities like Shanghai and Beijing. During the Chinese Spring Festival, a standard room at a five-star hotel on Hainan costs around 6,000 yuan, though prices can be as low as 200 yuan during the off-season.

Tourism is booming on Hainan; last year alone, tourists made 36.72 million trips to the island, a 10.6 percent increase from 2012. That number is expected to increase to 76.8 million by 2020. The island is also appealing to developers because it only takes three years for a hotel to make a profit there, while it takes 12 years in first-tier cities and up to 20 years in second- and third-tier cities. But some industry experts, like Wang Jiansheng, head of the Hainan Tourism Development Research Association, are concerned about the recent profusion of luxury accommodations.

“With so many identical high-end hotels concentrated in one place, it reflects oversupply and a waste of resources,” Wang said in an interview with Ecns.cn.

The Hainan hotel market is already showing signs of strain. Only luxury hotels with occupancies rates of more than 40 percent can turn a profit, but occupancy rates are dropping considerably on the island. The average occupancy rate for luxury hotels in the Hainan city of Sanya dropped to 60 percent last year, a 10 percent decrease from previous years, and some five-star hotel managers on the island are reporting occupancy rates of just 20 percent.

The island’s oversupply of hotels is to blame for the dip, and it is only expected to worsen in the future. The People’s Political Consultative Conference Hainan Committee recently reported that the five-star hotels on Hainan “can accommodate 28 million tourists a year at present, way exceeding an estimated demand of 8 million tourists by 2020.” Average occupancy rates for five-star hotels in the cities of Haikou and Sanya are projected to drop to about 30 percent in 2015.

According to Wang, greater differentiation among hotel brands is necessary if the market is to remain healthy.

“There are too many luxury hotels in one place. Though run by different hoteliers, they show little difference in architectural design, internal facilities and services. This makes the slow season even worse,” he said. 

Xia Feng, a researcher from the China Institute for Reform and Development, agrees, and believes that the island is lacking in accommodations for middle-class travelers.

“It’s rather a structural problem. The island still needs more middle-end hotels, youth hostels and family inns to meet the rising travel demand of middle-income earners.”

image credit: flickr/see-ming lee

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