KUALA LUMPUR (Feb 2): Malaysia ranked third among the most attractive countries for hotel investment in Southeast Asia, after Thailand and Singapore, according to Knight Frank’s Malaysian Hospitality Investment Intentions Survey.

The survey, conducted in the fourth quarter of 2020 (4Q20), analysed the investment perspectives of hotel owners, operators and owner operators, providing insights into investment demand, investor preferences and pricing, as well as sharing how Covid-19 had impacted the sector and what measures could be taken to provide some much-needed relief.

Knight Frank Malaysia executive director of capital markets James Buckley noted that well capitalised, shrewd investors are looking beyond the pandemic and see it as an opportunity to acquire prime hotel assets at more reasonable pricing. 

“We believe prices of Malaysian hotels that trade will reflect a 10% to 30% discount to their pre-Covid values ... tourism is an important sector as it is the third largest contributor to the economy and employs about 3.6 million people. Before the pandemic hit, it contributed a total of RM8 billion in tourist receipts from about 26 million international visitors in 2019,” he said.

“Upgrading/expanding and improving direct international flights to Penang and Langkawi in particular would provide a real boost to tourism. Langkawi is a fantastic tourist destination with great potential to grow its international tourist arrivals and receipts, and compete on the same footing as Phuket, Bali and the Maldives. To achieve this, it needs to improve its regional flight accessibility. Before the pandemic hit, there were only direct international flights from Guangzhou, Singapore, Phuket and Doha.”

However, the majority of the respondents (89%) indicated that tourist arrivals and flight accessibility are crucial in their investment decision-making process, followed by friendly government initiatives in motivating hotel operations and investments as they cushion the impact of market sentiment.

The survey also revealed that 14% of the respondents anticipate buying hotel assets within the next two years, while 16% look to make an acquisition even sooner within the next six months despite the pandemic.

The factors these respondents consider when it comes to investing in a hotel are the location (88%) and the expected return/yield (72%). Many investors are now seeking higher returns to offset the risk of investing in the sector during the pandemic with 36% of respondents targeting a net yield of above 7%. 

In 2020, hotel transactions across Malaysia fell by 36% compared to the 10-year annual average. The cut in the availability of bank financing for hotel transactions was a contributing factor.

Knight Frank Malaysia executive director of valuation and advisory Justin Chee noted that investors are increasingly looking for yield-accretive assets during challenging times.

“It is important to note that based on the past few hotel transactions [in the past five years], hotels in Malaysia were generally transacted at net yields of about 4% to 6%. There is definitely a mismatch between expected returns and selling prices of hotels. What we may possibly see during this pandemic and the fallout of the Covid-19 impact on the hospitality sector is the bridging of the gap between the two as vendors are getting more realistic with their hotel values and asking prices,” he added.

Almost half of the respondents remained positive about the hospitality sector outlook for the next 12 months, with 45% feeling that the sector is on its way to a recovery amid the progressive roll-out of vaccines and opening up of international travel restrictions. 

While the Malaysian government has provided wage subsidies to the hotel sector to cushion the impact of Covid-19, the industry has also put forward other ideas to assist the sector, such as temporary reclassification of electricity tariffs, tax cuts and a temporary moratorium on quit rent.

Knight Frank Malaysia executive director of research and consultancy Judy Ong, nevertheless, reckoned that the road to recovery for the battered tourism industry will be long and hard with the ongoing movement control order (MCO 2.0).

“Government measures and incentives to support the industry may be too little and too late as we continue to hear of more hotels shutting down either temporarily or permanently. Hotels that are still in operations are aggressively promoting staycations and attractive ‘work-from-hotel’ packages as well as food delivery services to stay afloat and support employment,” she said.

“Moving forward, once interstate travel is allowed, we believe that domestic tourism will lead the way to recovery, supported by the recently launched National Tourism Policy 2020–2030, which aims to position the country as among the top ecotourism destinations,” she added.