The Chinese developer behind a luxury five-star hotel being built on Auckland's waterfront wants major action to stop rising construction costs which are fast making investment in vital tourism infrastructure uneconomic.
Fu Wah International chairman Chiu Yung says the $200 million Park Hyatt hotel his company is building on the former Team New Zealand site on Halsey Street is over budget.
While Fu Wah is working with its prime contractors to get escalating costs under control, Chiu says he seriously considering the postponement of a planned second hotel until the Auckland construction market is in a "more competitive space" and less expensive.
"The initial strategy was to have something less luxurious than the Park Hyatt, a three or four star hotel, however, due to the current situation of the Auckland construction market the budget has been driven up," he says.
"All markets fluctuate and there will finally be a day when the market goes down."
But he suggests this could be some years away unless action occurs.
Chiu advocates the Government clear the way for Chinese companies to build pre-fabrication plants in New Zealand to introduce production efficiencies and get costs down.
While Chiu says he believes "individual labour efficiency is quite high" in Auckland, in his view there are too few labourers to cope with the demand in a booming construction market.
"If we do not cope with this situation properly it will ultimately drive the production price up which in the end will be devastating and negative to the tourist industry as a whole," Chiu said from his Beijing headquarters.
He has also taken issue with the cost of materials for hotel developments such as sanitary ware.
"For example, you can buy for a similar price in China and the US, however when it comes to New Zealand we have to buy at a price that is one times or two times higher than the average international price."
He suggests one solution might be to hold an event such as a construction materials fair or expo so that companies from Germany, Japan, China and Australia come to New Zealand to promote their products, introduce more competition and ease the tension on the current construction market in New Zealand.
The Fu Wah chairman earlier wrote to Auckland Mayor Phil Goff in protest at the mayor's plans to introduce a targeted rate for Auckland accommodation providers saying if the group had known about the proposed rate before making its investments, "we would have more than likely made the decision not to go ahead with the project".
At the time of the Herald's interview, Goff had yet to reply.
But Chiu said the targeted rate would be "devastating for new hoteliers" and suggested it be applied to accommodation providers alone in the short term making the point that it can take about 18 years before hotels start to post a positive return on investment.
The Fu Wah chairman points out the gap between supply and demand for hotel beds in Auckland has already pushed accommodation prices up.
Two years ago he paid a room rate $200-$300 a night in Auckland, but that rate is now up to $500-$600 a night for a bed in the same hotel.
Chiu said hotel owners should invest in the interior decoration, renovation and refurbishment of their hotels because the "guests are paying higher prices and they are, of course, expecting higher quality for the hotel".
"If this circle can be created with one hotel starting to refurbish to an international standard the other hotels in the same tier will follow suit and they will start to compete against each other.
"When nearly all of the hotels are doing the major [capital expenditure] and refurbishment then the quality of the Auckland hotels will be increased dramatically."
Fran O'Sullivan was a guest of Alibaba in China.