by Michael Switow
If you visited Singapore’s Sentosa Island just a few years ago, it was a sleepy backwater, a place largely favored by a small mix of locals and expatriates who enjoyed playing beach volleyball and Ultimate Frisbee. A smattering of tourists also frequented the 1970s-styled attractions, like the 54-hole miniature-golf course or iconic half-lion, half-fish 37-meter-tall (121-foot-tall) “Merlion,” which has glowing eyes at night and a visitor viewing deck in its mouth.
Sentosa today is a completely different picture. Some 19 million people visited the island in 2011, about half from outside the country. The Merlion is still there as are the beach enthusiasts, but the large jump in visitors is largely thanks to Resorts World Sentosa (RWS), the integrated resort (or “I-R” in local terms) that features Universal Studios Singapore, a marine life park, a maritime museum, six new hotels, high-end retail, and more than 60 restaurants, bars, and eateries.
And that’s not all.
Outside RWS—but still on Sentosa—there are other new attractions, including an indoor skydiving simulator, wave pool for flowriding (a type of surfing), mega zipline, and luge ride. For those wishing to chill out, there are spas. And for the kids, an aviary, butterfly park, and other animal and insect encounters.
RWS has only been open since 2010, but its hotel occupancy and average room rates hit an all-time high in the second quarter of this year (the latest period for which figures are available) at 92 percent and S$432 (US$348), boosted by more visitors to the Universal Studios theme park.
Sentosa’s makeover was driven by the Singapore government, which wanted a new tourist destination that could contribute to the country’s GDP and its image as a world-class destination. But undertaking the renewal would not have been commercially viable on the financial merits of
the attractions alone, so Singapore adopted a mixed-use development model, one that was driven by a very different revenue stream: gambling.
RWS was granted the first of two licenses in Singapore to operate a casino. Prior to 2010, the only place to make a legal bet in the city-state was at the race track. Since then, RWS and the casino at Marina Bay Sands combined to produce US$5.4 billion in gaming revenues in 2011, just 21 percent shy of the earnings of the 55 casinos on the Las Vegas strip.
Not Ready to Gamble
While Singapore appears to be doing a good job of mitigating the social ills that can accompany casino developments—through public education campaigns and “exclusion and self-exclusion lists” preventing problem gamblers from playing—many Asian communities are not ready to take this sort of risk.
Yet the integrated resort model—albeit without the gambling—has still caught the attention of governments and developers elsewhere in the region. But instead of casinos, they have zeroed in on another dimension of the Sentosa success story: property development.
“Governments don’t have lots of cash, but they do have development rights to the land,” notes Chris Yoshii, an economist with AECOM. “The governments do these trade-offs. They are looking for an economic driver for the city or district, but you need to build an attraction, too. So there are quite a number of developments that are property plays, where the main driver is a residential development.”
“It’s very characteristic for (Asian) theme parks to be planned and built as more integrated developments—whole communities where there are hotels, retail, and residential developments,” Yoshii adds in his company’s 2011 Global Attractions Attendance Report. “The scale of these integrated developments varies from single blocks with large indoor entertainment areas to entire new districts of cities and resort destinations.”
At Sentosa, in addition to the new hotels and retail space, some 2,500 luxury residential units are being built in an exclusive neighborhood called Sentosa Cove, which bills itself as “the world’s most desirable address.” Australian mining tycoon Gina Rinehart apparently agrees with the description. In August, she purchased two condos there for S$57 million (US$46 million), the most ever paid for property in Singapore.
Analysts say that property is more attractive thanks to the resorts and theme parks that are nearby. At the same time, property values near these attractions rise thanks to the new mixed-use developments.
Drive some 78 kilometers (48.5 miles) to the northeast of Sentosa or 48 kilometers (30 miles) to the northwest and you arrive at new attractions being built by Malaysia’s sovereign investment fund, Khazanah Nasional.
In Puteri Harbour—future home of a theme park featuring Hello Kitty, Bob the Builder, and Barney, among others—Khazanah is investing more than 500 million ringgit (US$160 million) in attractions, plus a Traders Hotel, shopping mall, office, and residential developments, all of which complement Legoland Malaysia, which opened just a few kilometers away in September. The Legoland Hotel, which is designed from a child’s viewpoint and features low restaurant counters and a treasure chest of Legos in every room, opens in early 2014.
Over to the east in Desaru—which is now more easily accessible thanks to a new highway—construction has started on an Aman Resort and golf courses designed by Ernie Els and Vijay Singh. Future attractions to be completed within the next three years include Ocean Splash, a water park, and Ocean Quest, a marine park where visitors can swim near stingrays and other fish.
Malaysia’s Integrated Resorts
Khazanah has set up three companies to develop Desaru and Puteri Harbour: Themed Attractions focuses on the theme parks and attractions. Sister company Destination Resorts and Hotels tends to the hotels, resorts, and infrastructure (everything from the golf courses and street lights to irrigation and sewage). And publicly listed UEM Land is in charge of real estate.
“We are building destinations as opposed to just resorts or attractions,” says Lau Yin May of Khazanah subsidiary Destination Resorts and Hotels. “We need more than just a hotel room where visitors can stay. Travelers are more sophisticated. Some just want to chill; others try to do as much as they can. With destination development, we make sure there are more than enough activities.”
“Mixed-use development is extremely important,” adds Lau’s colleague Darrell Metzger.
He should know. Metzger oversaw Sentosa’s transformation before joining Khazanah. (Metzger is also a former chairman of IAAPA, the publisher of Funworld.)
“It would be very difficult for anyone in the private sector to get a theme park funded,” he says. “It would be very difficult to get financing for a free-standing attraction. Mixed-use development is almost a necessity unless you are in a huge population center.”
This is where retail and residential property development comes into play, Metzger notes, as well as additional attractions like custom-designed golf courses.
It’s not difficult to see why.
Broadly speaking, theme parks in Asia earn single-digit returns, according to Yoshii. Hotels and retail space earn 10-20 percent, while returns on residential developments can rise as high as 50 percent.
Overseas China Town
Take the example of OCT East, a development by one of China’s largest theme park companies, Overseas Chinese Town.
Located about 40 minutes from downtown Shenzhen—an industrial city with a Wild West feel located across the border from Hong Kong—OCT East features three scenic “European” towns, an “ancient” Mandarin mansion, and a temple alongside two theme parks in a beachside resort area known as Dameisha.
Before OCT East opened about five years ago, Dameisha was not considered a particularly attractive part of town. Now, the ocean-view villas and condos that have been built along the edges of the park fetch some of the highest prices in Shenzhen. At the same time, the park, which receives about four million visitors a year, is constantly expanding and adding more attractions.
“It’s a win-win situation for the developer,” Yoshii notes. “They get a much faster financial return and have been able to reinvest in the theme park.”
Elsewhere in China, observers believe that speculation—and a desire to circumvent government rules designed to cool the property market—is what’s really driving new projects.
“Many investors don’t mind losing money operating theme parks, since the sales of tickets and food make up only a very small percentage of their profits,” Feng Yuguo, secretary-general of the China Association of Amusement Parks and Attractions, told the China Daily recently. “The major part comes from the adjacent commercial and residential developments, including apartments, villas, and hotels.”
For mixed use development to work, though, it’s critical to get the order right. Investors need only look to Wonderland, a planned theme park turned ghost town north of Beijing, or the hugely ambitious Dubailand that was to include a Ferris wheel bigger than the London Eye and branded attractions by Dreamworks Animation, Formula One, Legoland, Marvel, Paramount, Six Flags, and Universal Studios, but which now sits empty.
It takes more than just a good media release or launch party for an integrated resort to succeed and property values to rise. Investors have to believe that a site is actually being transformed. The attractions must come first or at least be built at the same time as other developments, because without them, nearby properties don’t take off either.
“You need to give people a reason to buy,” says Metzger.
Michael Switow is a Singapore-based freelance writer whose reports have appeared in Asian Journeys, Chicago Tribune, The Christian Science Monitor, and others. He is a frequent contributor to Funworld.