Malaysian developer Landmarks is planning to build a 338ha resort on Bintan, a weekend getaway 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 US$250 million (S$352 million) to buy the land and added another US$50 million for development costs for the first phase of the project, Mr 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' revenue, Mr Fong said. The developer owns a resort in Langkawi, Malaysia, and a minority stake in the Eastern & Oriental Express luxury train.

"We expect a return on investment of about 10 per cent for the development," Mr Fong said. "We would also like to target the conference and meetings market that's very big in Singapore. To make it a relevant tourist destination, we have to have 5,000 to 7,000 hotel rooms."

Landmarks and Singapore-listed Gallant Venture, the developer of the 1,300ha Lagoi Bay development, are expanding on the island as tourist arrivals decline.

Visitor numbers from Singapore, one of the main transit points for tourists travelling to the island, have fallen from 98,274 in 2012 to 84,075 last year, HVS, a research and consulting firm for the hospitality industry, said in a report last month.

Landmarks' 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 South-east Asian destinations and help position Bintan as a preferred holiday resort, he said.

Mr Feny Sindarta, a senior analyst at HVS, said the island has the potential to grow as a popular leisure destination with the new international airport and the new resorts. "Bintan, though in Indonesia, has always been labelled as Singapore's backyard," he said. "It hasn't been marketed as a destination on its own."

BLOOMBERG