A new article on New Fortune (新财富）reports that there are already 651 five star hotels in China, but there are about 500 more that are under construction right now. The average occupancy rate for these hotels is only 61%, the lowest in Asia.
The International chains, from InterContinental, Marriott, to Hilton and Shangri-La, are all increasing their presence in China. But often they are just selling their licenses and managing service, the true investors of most of the new hotels are Chinese real estate developers. Most of these hotel projects are not nearly as profitable as selling residential apartments, so why do the developers do that?
The developers’ motive is actually no secret to industry insiders. First of all, these hotels raise the price of apartments in its neighborhood. Moreover, the local governments, who can give developers cheap land, love to have more five star hotels in their territories. Five star hotels are a symbol of local economic success and serve the officials’ vanity well.
But the developers are relying on sales profit of apartments to fund all these money-losing five star hotels. What will happen to these empty hotels when the real estate bubble burst?