How to start a hotel business in Vietnam

Vietnam's vibrant hotel industry has been experiencing a resurgence, closely tied to the recovery of the tourism sector. Projections indicate that revenue in the hotel market is set to soar to US$1.49 billion in 2023. Anticipated figures signal a healthy annual growth rate of 7.37%, culminating in an estimated market volume of US$1.98 billion by 2027. 

This resurgence, driven by both domestic and international tourists, presents promising opportunities for foreign investors looking to expand their operations in Vietnam's hotel market. Join us as we explore the current state, prospects, and essential steps for establishing a hotel in this dynamic Southeast Asian nation.

An overview of hotel industry in Vietnam

The current situation of hotel market in Vietnam

The Vietnamese hotel industry's development is closely tied to the recovery of tourism. According to Savills Vietnam's report, in H1 2023, hotel occupancy rates reached 64%, showing a strong rebound to 92% compared to H1 2019. The average room price stood at 1.9 million VND per night, equivalent to 97% of 2019 rates.

In Ho Chi Minh City, hotel room supply increased by 3% year-on-year, totaling 15,662 rooms from 110 projects. Meanwhile, Savills Vietnam reported in Hanoi, a 10% year-on-year increase in hotel room supply for Q2 2023, reaching 10,962 rooms. The average annual room rent price reached 2.5 million VND per room, a 26% year-on-year increase.

However, in Q2 2023, hotel room occupancy was at 62%, significantly lower than the 73% recorded in the same period in 2019. The slow recovery in international tourists visiting Vietnam has impacted this trend.

Domestic tourists are a ray of hope for the hotel market. In the first seven months of this year, domestic overnight tourists reached 46.7 million, surpassing the 2019 pre-pandemic figure of 43.5 million.

Vietnam's hotel market is projected to reach $1.49 billion USD this year. In reality, Hanoi saw hotel room utilization rates exceed 57%, a 25.5% increase from the previous year. Some tourism-strong localities experienced accommodation revenue growing over 70%.

The long-term sustainability of hotel room occupancy is mostly connected to international tourists. In the first seven months of 2023, the number of new international visitors was only 67.5% compared to pre-pandemic levels (6.6 million arrivals compared to 9.8 million).

Nonetheless, a promising signal for international tourist growth is Vietnam's relaxed visa policy introduced on August 15, 2023, allowing visa-free entry for citizens of certain nations for 15 to 45 days and extending e-visa validity from 30 to 90 days.

Industry experts predict that Vietnam's hotel industry will benefit from the new visa policy, with favorable conditions for developing the international tourist segment. In July 2023, Vietnam welcomed over 1 million international tourists in a single month.

The opportunities and potential sectors in hotel market in Vietnam

The Hanoi hotel market has shown positive developments alongside the tourism sector's recovery, and it is expected to continue attracting foreign investors looking to expand their operations. According to Mr. Matthew Powell, Director of Savills Hanoi, the market still holds significant growth potential. However, it will take more time to fully recover and reach or even surpass pre-pandemic levels.

Savills predicted that Hanoi's hotel supply will see the addition of 2 new projects with a total of 471 rooms in 2023. From 2024 onwards, an estimated 66 new projects with 11,123 rooms are expected to emerge, featuring international operators like Four Seasons, Lotte, Dusit, Wink, Accor, The Shilla, Hyatt, Marriott, and Hilton. Among these 68 new projects, 61% will be 5-star hotels. The 5-star Hilton Hanoi Opera will also temporarily close for upgrades and relaunch under the Waldorf Astoria brand.

Mr. Matthew Powell believes that this will be a positive addition to the hotel supply, especially in the luxury segment in Hanoi. Additionally, the emergence of high-end apartment products and 3-4-star hotels in the city center and surrounding areas, adding diversity to the existing tourism products in the market.

Overall, Vietnam's hotel market has seen positive shifts in recent times, aligning with the recovery of the tourism sector, and it is expected to continue playing a role in attracting foreign investors looking to expand their operations. While there is still ample room for growth, additional time will be required for a full recovery to reach or even surpass pre-pandemic levels.

How to set up a hotel in Vietnam

Embarking on the journey of establishing a hotel in Vietnam involves several crucial steps. As the process is intricate with various legal requirements, foreign investors are advised to consult with a local expert on navigating through the company incorporation. 

Step 1: Land Leasing Procedures

First of all, foreign investors need to find out the location of the investment project as well as carry out initial land lease procedures. Foreign investors can use land through leasing arrangements with the State or Vietnamese economic organizations. 

Step 2: Apply for an Investment Registration Certificate

Regarding the ownership ratio of foreign investors: According to Vietnam's commitments in WTO, hotel services are considered hotel accommodation services (CPC 64110). Foreign investors are allowed to establish 100% foreign-owned enterprises or joint ventures, and there are no restrictions on foreign capital contribution.

Foreign investors seeking to establish a hotel in Vietnam must obtain an Investment Registration Certificate, which can be done through the help of a seasoned local expert in legal compliance. This is considered the initial step in carrying out a hotel construction project in Vietnam. 

In some cases, foreign investors may need to follow the procedures for obtaining approval of investment under Articles 31, 32, and 33 of the Law on Investment 2020 and Section 2, Chapter IV of Decree 31/2021-ND-CP (depends on the scale of land use of the investment project). The process of applying for the approval of investment must be completed before applying for an Investment Registration Certificate. 

Step 3: Obtain the Enterprise Registration Certificate 

To proceed with a hotel construction project in Vietnam after obtaining the Investment Registration Certificate, foreign investors must proceed obtaining the Enterprise Registration Certificate in accordance with the Law on Enterprise 2020 and relevant regulations. 

This step is also a prerequisite for operating a hotel business. Foreign investors can choose from various types of enterprises in Vietnam, including Joint-Stock Company, Single-Member Limited Liability Company, multiple-member limited liability company, Partnerships, and Sole Proprietorships. Each type of enterprise has different registration requirements and documents.

Step 4: Complete land use rights registration procedures

After the Company establishes, it needs to complete the registration procedures with the competent state authority in accordance with land laws in order to construct hotels on land that is legally owned.

Step 5: Obtain a domestic and international travel service business license

Foreign investors seeking to obtain a license for a domestic and international travel services business should compile the necessary documentation in accordance with provisions of the Law on Tourism 2017. Investors are required to submit one complete set of documents to the Vietnam National Administration of Tourism. Upon receiving a valid application, the Vietnam National Administration of Tourism will assess the documents and issue the domestic and international travel service business license for the foreign investors' companies within 10 days. Simultaneously, the tourism authority of the province where the companies are situated will be informed. If the application is declined, the reasons for refusal will be conveyed in writing with clarity.

Step 6: Obtaining the Building Permit

Before commencing hotel construction, foreign investors are required to obtain a Building Permit. The competent authority for issuing this permit is the Department of Construction.

Note: Operating a hotel is a conditional line of business for foreigners in Vietnam. Therefore, foreign investors will need to complete additional licensing procedures before the hotel can start its operations.

Final Thoughts

Vietnam's hotel industry is on an upward trajectory, with growing opportunities for foreign investors seeking to capitalize on its resurgence. As the nation continues to attract domestic and international tourists, the demand for accommodations remains strong, and the market is poised for further growth.

If you're considering entering the Vietnamese hotel market or expanding your hospitality business in the country, Viettonkin Consulting is here to guide you every step of the way. Our team of experts specializes in facilitating investment and ensuring a smooth establishment process. Don't miss out on the exciting prospects in Vietnam's hotel industry. Contact Viettonkin Consulting today to start your journey towards success in this thriving market.