SINGAPORE (BLOOMBERG) - Malaysian developer Landmarks Bhd. is planning to build a 338-hectare resort on Bintan, a weekend gateway island in the Indonesian archipelago off Singapore, adding to a potential oversupply of hotels as visitor numbers and room rates decline.
Landmarks has spent about $250 million to buy the land and added another $50 million for development costs for the first phase of the project, C.K. Fong, chief operating officer of the developer, said in an interview in Singapore. Treasure Bay Bintan will eventually account for about 80 per cent of Landmarks's revenue, Mr Fong said. The developer owns a resort in Langkawi in Malaysia and a minority stake in the Eastern & Oriental Express luxury train.
"We expect a return on investment of about 10 percent for the development," Mr Fong said. "We would also like to target the conference and meetings market that's very big in Singapore and we want to extend it here. To make it a relevant tourist destination, we have to have 5,000 to 7,000 hotel rooms."
Landmarks and Singapore-listed Gallant Venture Ltd., the developer of the 1,300-hectare Lagoi Bay development, are expanding on the island as tourist arrivals decline. Visitors from Singapore, one of main transit points for tourists traveling to the island, have fallen from 98,274 in 2012 to 84,075 in 2014, HVS, a research and consulting firm for the hospitality industry, said in a report last month.
Landmarks's project, to be built in three phases over 20 years, also faces competition from other luxury hotels. The number of hotel rooms is expected to increase steadily over the next two years, with about 1,300 new rooms across nine luxury hotels being added, according to HVS. Occupancy rates are expected to decline by 4 per cent next year.
Mr Fong said Landmarks is not just focusing on high-end tourists; it is also targeting budget-conscious consumers.
"We are investing in the future and we are aware that the market is susceptible to fluctuations," Mr Fong said. "We see it as a long play."
Treasure Bay's development is timed to coincide with the completion of the Bintan International Airport in 2017, he said. The airport will level the playing field with other Southeast Asian destinations and help position Bintan as a preferred holiday resort, he said.
Landmarks shares have gained 13 per cent this year to RM1.11, compared with a 4 per cent decline in the benchmark FTSE Bursa Malaysia KLCI Index.
Landmarks is also hoping to tap into the growth in wellness tourism in Asia, where Indonesia is one of the fastest-growing destinations for health and spa resorts, Fong said.
The Canopi hotel is already open at Treasure Bay and Ibis and Mercure will open by 2017, Mr Fong said. Phase one will have as many as 13 hotels, including Canyon Ranch, a wellness resort, expected to open as early as 2018.
Landmarks will start selling villas at Canyon Ranch by year-end targeted at high-net-worth individuals. The villas will range from 15,000 square feet to 35,000 square feet and cost between $3.5 million and $6.5 million, he said.
Bintan, a 45-minute ferry ride from Singapore, is a favorite of local Singaporeans because of its proximity to the island-state, though has remained in the shadows of more popular resorts in Bali in Indonesia and Thailand when it comes to attracting international visitors. Until 2014, when the luxury Sanchaya resort opened, the last new hotel on Bintan was started more than 10 years earlier.
The island has the potential to grow as a popular leisure destination with the new international airport and the new resorts, said Feny Sindarta, a senior analyst at HVS.
"Bintan, though in Indonesia, has always been labeled as Singapore's backyard," Ms Sindarta said. "It hasn't been marketed as a destination on its own."