3-star hotels become more popular among investors Though competition in the 3-star hotel market segment has increased, many hotels are seeing worse business performance because of increased supply. Developing 3-star hotels remains a very profitable business. The report by Savills Vietnam about the hotel market in the first quarter of 2016 showed a slowdown in the growth of the 3-star hotel market segment due toa sharp increase in the supply. With four hotels joining the market, the supply increased by 1 percent in the last quarter and 14 percent last year. The room rate decreased slightly by one percentage point in the last quarter and 2 percentage points last year. By the first quarter of 2016, Vietnam had 117 hotels with 15,000 3-5-star rooms. In the first quarter of 2015, HCMC had 99 hotels with 13,100 hotel rooms. No new 5-star hotel became operational in 2015. The supply mostly came from 3-4 star hotels. According to Savills Vietnam, the supply increase recently has led to stiffer competition in the market. Though competition in the 3-star hotel market segment has increased, many hotels are seeing worse business performance because of increased supply.  The hotel room price decreased by 5 percent in the first quarter of 2016 in comparison with the previous quarter to VND1.8 million on average. Nguyen Thi Van Khanh from Savills Vietnam commented that there were many rivals in the playing field, while newcomers tend to launch sale promotion programs to attract customers in their first period of operation. However, hotel owners do not intend to ‘dump’ services. Nguyen Minh Quyen from Ben Thanh Tourist noted that though investors have to compete fiercely in the market, 3-star hotel remains a potential market segment for them. In recent years, while the real estate and hotel markets have witnessed big changes, 3-star hotels have remained a ‘safe’ market segment, because they can serve both international and domestic travelers and have an occupancy rate over 60 percent. According to Nguyen Duc Ngoc, director of Prive Hotels Group, the 3-star hotel market segment attracts investors because it is less costly and it recoups investment capital more quickly than hotels in higher-level market segments. It is estimated that investors need to spend $4-5 million, not including money for land, to develop a 100-room hotel in HCMC. It takes 5-6 years to take back investment capital.  A lot of 3-star hotels in HCMC are owned by investors from Hai Phong City.  These include A & Em Hotels Group which has been in HCMC since 2002. The group of investors from Hai Phong now runs 2-3 star hotel chains (Tan Hoang Minh and A&Em), and some other hotels in the central business district of HCMC. DNSG