Creating a market for luxury boutique hotels

By Kevin Chen
STAFF REPORTER
Monday, Jun 23, 2003, Page 11

Lai Cheng-i, chairman of The Lalu resort at Sun Moon Lake is confident that small luxury boutique hotels can be a profitable niche in the Taiwan market, despite the downturn in the travel industry due to the SARS outbreak and weakened economy. PHOTO: GEORGE TSORNG, TAIPEI TIMES

Taipei Times: How has the SARS outbreak impacted your hotel business?

Lai Cheng-i (賴正鎰): Since the SARS outbreak in late April, occupancy rates of The Lalu (涵碧樓) dropped to 70 percent in early May and further slipped to 30 percent in late May. But as soon as Lee Ming-liang (李明亮, co-chairman of the Cabinet's SARS prevention committee) said on May 24 that the public should return to their normal lives, occupancy began to pick up and are now nearly on par with the pre-SARS level.

We've 500 inquiries a day, and about 100 bookings were settled during the first 19 days this month, so we expect business will start to stabilize this month.

TT: Have you reduced your room prices to attract customers during the outbreak?

Lai: While other tier-one hotels have cut room rates to attract customers, we have not offered any discounts throughout the outbreak, period. I think the reason we could buck the downward trend is because we're a mid-sized resort focused on foreign individual travelers and local wealthy customers. They are our primary customers.

"I think we are encountering a trend whereby five-star hotels in urban areas will be gradually squeezed out by resorts and boutique hotels on one hand and cheaper four-star hotels on the other."

Lai Cheng-I, chairman of The Lalu

Though business was also hit by the drop in foreign tourists due to the disease, we're glad to see a surge in local visitors filling up some of the space vacated by foreign travelers. In comparison, hotels in bustling urban areas accommodating group tourists and inbound business travelers suffered the most in the last two months.

TT: Even though The Lalu made it to Conde' Nast Traveler magazine's list of the top 80 new hotels this year, there is some question about whether the facility is justified in charging room rates ranging from NT$12,300 to NT$52,500 a night. Are you making money?

Lai: It's true that our room rates are generally about four-times the price of other five-star hotels in Taiwan. But fortunately we are satisfied with monthly sales around NT$35 million to NT$40 million on average since we opened in March last year. Why? Because we only have 96 rooms and we have proved that it's easier to achieve higher occupancy than our rivals, be it in Pingtung's Kenting or in Taitung's Chihpen, which have as many as 400 rooms.

But most importantly, I think we are encountering a trend whereby five-star hotels in urban areas will be gradually squeezed out by resorts and boutique hotels on one hand and cheaper four-star hotels on the other. As the wealthy are able to use professional financial assistance to keep their assets intact during the economic slump, they can afford paying up to more than NT$10,000 a night or more for beautiful mountain and lake views.

Meanwhile, four-star hotels in urban areas have found their niche to stay competitive in the industry by offering economy prices and average service to customers, especially business travelers. In this scenario, we estimate there are around 3 million to 5 million people in Taiwan that fall into our `up-market category.'

Our long-term plan is to do well in the international travel business and we hope the number of foreign tourists will account for 70 percent of all guests by 2005 from the current 35 percent and up to 90 percent within the next five years.

TT: Your hotel was originally named after an indigenous Aboriginal settlement, Kuanghua Island in Sun Moon Lake, which the Thao called, `Lalu.' What's the status of the area surrounding the lake after some scenic spots nearby were damaged by the 921 earthquake?

Lai: It's a lot better now. As a matter of fact, many stores and accommodations in the lake area have undergone substantial reconstruction and undergone a facelift over the past few years. To boost foreign arrivals to the lake area, the Tourism Bureau has vowed to spend NT$6.4 billion by 2008 to help upgrade public facilities there. Detailed planning includes tearing down illegal housing in the area and replacing the current gas-powered boats with electric-powered boats. They also are improving the transportation infrastructure such as redeveloping the road circling the lake and extending a railway linking Taichung's Wuji station to the lake.

TT: The Lalu is the creative work of Australian architect Kerry Hill and the resort is now under the management of Singapore-based General Hotel Management Ltd. What's your role in the project?

Lai: I'm a developer and what I do is help our partners better understand the local market and join the market faster.

We did have many dis-agreements over the design with Hill and we were also puzzled about many of the demands from General Hotel Management. But following the exchange of ideas, and sometimes anger, we feel the fruit is sweet and all the efforts have paid-off.

It was very exciting for me throughout the process working with foreign professionals.

I have been in the real estate and tourism industry for more than 23 years, but I know what I lack is an `international perspective.' The Lalu and the yet-to-be-completed Hyatt Taichung project are good for me -- to learn from an international perspective what foreign architect firms and professionals have to offer. It's natural that people from different cultures will have different perspectives. Remember, how we view ourselves here in Taiwan is very different from how Taiwan is viewed from outside.

TT: I heard you are planning to build a hotel complex in Beijing's Forbidden City. How much is the proposed investment in the project and when do you expect it will be completed?

Lai: Because of SARS, we in the Shining Group (鄉林集團) have decided not to rush the decision-making process for the project for the time being. But as soon as SARS is also brought under control in Beijing, we will resume talks and work on that project and hope to finalize the plan by the end of the year.

As for the investment, it's still too early to nail down the real number now, though it will definitely surpass the NT$1.8 billion The Lalu project. This time we plan to work with international investors on the project and we will fund around 30 percent-50 percent of the total investment ourselves. So far, we have tentatively secured 50,000m2 of land within the Forbidden City and, if everything goes smoothly, we hope to finish construction by 2005.

TT: You have also been serving as chairman of the Taiwan Construction Development Federation (台灣省建築開發公會) for four-and-a-half years, since 1999. Have you seen signs that the government will lift the ban on direct links anytime soon?

Lai: The issue of direct links with China is key to President Chen Shui-bian's (陳水扁) re-election bid next March and I see no reason why the government cannot resolve the issue by that time. The government should help facilitate direct trade, transport and postal links with China to stimulate our economy.

According to my understanding, the domestic business community has high expectations for the links and I believe the opening would be an effective way to attract tourists and investment from across the Taiwan Strait to help boost domestic industry, including the real estate sector. I have traveled to China several times and met with several major developers who were keenly interested in investing in Taiwan, particularly in property around tourist sites and in major cities. Therefore, I believe that the ban on direct links will be lifted in one year.

TT: What's the outlook for the domestic real estate market? Is the sluggish property market starting to bottom out?

Lai: According to market analyses, the property market has stabilized this year with no substantial, foreseeable price drops in sight, though the total supply is expected to drop by 10 percent to NT$160.3 billion worth of housing units this year. Meanwhile, we have also seen the existing residential property sales continue to rise since last year due to the government's incremental land-value tax break and low interest loans.

TT: How well has the tax cut aimed at boosting real estate trading worked? Should the government continue to offer the tax-reduction program?

Lai: The government originally allowed the incremental land-value tax to be halved for two years beginning in February last year. Interestingly, the cuts in land value tax allow sellers to sell properties at a lower cost, while on the other hand it gives buyers more bargaining power.

Because tax reduction has effectively awakened our dormant real estate market while also increasing land value tax revenues by NT$50.2 billion, or 26 percent, from the previous year, the Ministry of Finance has planned to amend the law make the reduction per-manent. We welcome the move and hope authorities can quicken the pace in implementing the policy, because the original tax break is scheduled to end by the end of this year.