Developers moves into new growth area – budget hotels – to counter a slowing property market

New Bob Group Sdn Bhd, which began as a real estate agency in Penang and then turned developer, is now diversifying into the hospitality industry, targeting budget travellers.

The privately-owned group recently acquired an abandoned commercial building in Jalan Aargyl in Georgetown for RM3 mil and turned it into a budget hotel catering to cost-conscious backpackers.

Called Tido Hostel, it synergises with the company’s positioning as an affordable housing provider and a boutique investor in budget hotels.

New Bob Director, Dr Lee Ville , the son of group chairman Datuk Leslie Lee, wants to position the group in new growth areas within a slowing property market. He reveals to FocusM that New Bob is in the midst of acquiring similiar hip-looking properties in Kedah, Perak and the Klang Valley.

The buildings might be old shophouses, which can easily be refurbished, he says. “If the model flourishes, it might become a chain. We have to wait and see as it is our first venture into this field,” he says.

New Bob is expected to add at least three more Tidos to its portfolio by this year. The company has hired a consultant to help grow its new business and increase the number of guests for Tido.

The five-floor hostel offers 16 rooms with 88 bunk beds, of which eight can be converted into single or double rooms. The rates range from RM35 to RM180 for a night’s accommodation. The fifth floor is a common area equipped with wireless connectivity and a large-screen television with satellite stations.

Lee observes that while more people are travelling, many do not want to spend unnecessarily given the rising cost of living. “Travellers are also bolder now; they are getting younger and have access to all kinds of online information to tailor to their expenditures and cravings,” he says.

This group of travellers provides an opportunity for more budget hotels to spring up, he says.

Launched earlier this year, Tido Hostel currently has an occupancy rate of 50%, encouraging Lee that he may be hitting the right note with its target market. The occupancy rate has met New Bob’s projection although Lee is hoping to draw more guests.

The group plans to offer packages to school athletes taking part in various sporting events to be hosted in Penang.

Lee also envisions that more young Malaysians will adopt a backpackers’ culture, emulating many of the developed nations’ globetrotting youths, especially the Europeans and Americans.

“I used to backpack when I was studying in Europe. Seeing the world on a shoestring budget is an adventurous experience for the young,” he says.

New Bob’s move into the hospitality industry may have been triggered by the slowing property market to enable the company to spread its risk, notes an industry observer.

“It makes sense to venture into lower-cost enterprise that can generate continuous revenue to help balance a slowdown in another sector,” he says.

Lee reveals that New Bob Tropics, its developer arm, has recorded a drop of 20-30% in sales volume for the first quarter compared to the same period last year.

Other developers are facing a similar situation as the credit crunch is eating into the sales of properties for both the new and secondary markets in Penang, he says.

Lee laments that the continued rejection of loan applications by financial institutions is one of the main reasons dampening sentiments in the property industry.

He believes the slowdown will continue for a foreseeable period, although he is optimistic  sales will pick up by the fourth quarter if China, which is experiencing an economic slowdown, can defy its naysayers.

However, he notes the tourism sector continues to be robust, given the government’s emphasis on forging higher domestic consumption to counter a weaker ringgit and slumping global economy.