Posted by: neilh10 | August 26, 2011

Chinese investment in Iceland.

A proposal by a Chinese investor to build a hotel in north Iceland has caused a bit of a stir recently. The proposal, as reported in the Iceland Review appears to be as follows:

Huang Nobu, chairman of the Chinese investment company Zhongkun Group, and the owners of the land Grímsstadir á Fjöllum in the remote northeastern Icelandic region, where a farm and guesthouse stand, signed an acquisition agreement yesterday.

Zhongkun Group is planning the construction of a five-star hotel, an 18-hole golf course and facilities for horseback riding at Grímsstadir and the development of environmental tourism in the area; the company has also been involved in such developments in China and the US, Morgunbladid reports.

The total investment at Grímsstadir á Fjöllum is worth ISK 10-20 billion (USD 87-175 million, EUR 61-121 million) and developments could take around three years.

Unsuprisingly, the proposal has hit a nerve in the Icelandic media, with speculation rife about the true motivations of the investment – see here and here . I’ve been reading the always interesting discussions on the Iceland Weather report facebook page about the subject, and thought I would weigh in with the following comments.

If the hype is to be believed, the five star hotel is to be targetted at wealthy asian tourists. One of the fears expressed is that they will want to turn the land in to some hideous chinese mass tourism style theme park, like a similar project in Sweden, photo here.

If this is the case, then how are the masses of asian tourists going to get there? There are no direct flights from anywhere in Asia to Iceland, and, once you actually get to Iceland you arrive in Keflavik, at least a five hour drive away from the proposed location of the hotel. I’m not aware of any other hotels being successfully operated on similar principles, anywhere in the world. If they are serious about building a hotel there and serious about making money there (as opposed to throwing away the 50-100 million pounds they are claiming to be investing on the project), it would make a lot more sense to build something similar to the Hotel Ranga, somewhere that will appeal to the more accessible US and European markets. Or is the proposal propelled by some kind of optimistic faith in a new market emerging of super rich asians who want to spend 24 hours travelling to what is basically the middle of the Icelandic desert? Who knows.

In any case, if it is the latter, then the existing guesthouses in Iceland would have very little to worry about, because the venture would be aimed at a totally new market. One of the concerns expressed is that the construction of five star hotels in the Icelandic countryside would mark the death of the current network of family run guesthouses that characterise the Icelandic countryside. But the reality is that small family run guesthouses are the main form of tourism business in Iceland because the conventional tourist season has been too small to justify any investment until now in major hotels outside of Reykjavik and Akureyri. Indeed, a lot of hotels that I am aware of in Icelandic countryside are mired in bad loans and run at a huge loss. If you go to a bank in Reykjavik or London or anywhere else, they simply wouldn’t look at a proposal for a hotel that depends on what is basically a 10 week tourist season to make a return. Family run guesthouses, on the other hand, have significantly lower overheads, particularly employment costs, and space that can be utilised outside the summer for other purposes.

But, if the Chinese think they can defy all the evidence to the contrary and the experience of almost everyone who has tried to run tourism businesses in Iceland, then why shouldn’t they be allowed to have a go at it? The government want to encourage foreign investment in the tourist industry, especially important when you consider that investment is pretty much off limits in the other two growth areas of the economy: renewable energy and fishing. If the deal does go ahead, it will be an interesting test of Icelands planning and environmental impact assessment regulations. But of course, there are a lot of unanswered questions: like why exactly they need thirty thousand hectares of land to construct the hotel. Hopefully the governments promised investigation will look in to these issues.

Update 30/08

And, these are the unanswered questions that the government might want to ask itself, before they approve the deal, particularly given that it was revealed recently that the Chinese are paying 1 billion kr for the land.

1) Does the sale of the land confer rights for the buyer for energy or water exploration on the land?

2) If not, would the purchase give the buyer a claim on any future energy or water exploration on the land?

3) If the buyer does have such a claim on energy and water rights, is the price paid a fair valuation and is the sale in Iceland’s national interest?

4) Is there a credible business plan for a hotel and what is this?

5) Is the type of operation likely to be granted planning permission?

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Responses

  1. Bonjour Monsieur Huang Nobu,
    Je vous propose sur les hauteurs et dans le centre ville de THIERS (63300), adorable cité médiévale du centre de la France, située à 43km de Clermont Ferrand, 35Km de Vichy, 160km de Lyon, un immeuble R+3, de 900m², à rafraîchir dans sa partie habitation, et à aménager dans tout le reste composé d’anciens entrepôts de vaisselle et coutellerie.
    L’immeuble est atypique, à fort potentiel et sain.
    Le tout pour le prix très attractif de 150000euros, soir 166euros/m²….
    A votre disposition pour tout renseignement, par téléphone : 06.19.36.13.46. ou par mail : ol.francoise@orange.fr
    Bien cordialement.


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