It is now planning to set up a small chain of hotels in Vietnam by adding two more sites to its portfolio.

The third hotel project is likely to be a four-star, 260-room property with a gross area of 5,000 square metres in the heart of Hanoi.

The agreement on the joint venture already has been completed and a contract is due to be signed next month.

If everything goes well, the property is expected to be up and running within two years and will be managed by Century International Hotels.

D' Elegant managing director Francois Shih said: 'The advantage of having a hotel in Hanoi is that we can book the rooms for the forward journey of guests from either Hanoi or Ho Chi Minh City. Almost everybody going to Ho Chi Minh City is going to Hanoi as well.' He said another benefit in developing a hotel in the capital was the preferential treatment on land tax and a relatively longer lease of between 40 and 50 years.

Of the planned 260 rooms, 100 will be offered as serviced apartments as there is a shortage of this form of accommodation for expatriates working in Hanoi.

According to Mr Shih's research, there are more than 2,400 hotel rooms in the capital, with another 20-plus hotels developing more than 10,000 rooms.

This means Hanoi will follow Ho Chi Minh City in suffering from oversupply.

Mr Shih said: 'The situation is not as satisfactory as before. In the past, hotels were like gold mines. But there are now many mini-hotels offering prices half those of good quality ones. The only way out is to rely on management skills to control costs and wages.' He has pinned his hopes for a more buoyant market on improved US-Vietnam relations.

'The situation is not optimistic now, but the market will be improved as US-Vietnam relations are normalised as many investors, such as the Japanese, Koreans, Europeans and Americans, are waiting for that signal before coming in.' The other location the company is looking at for a possible hotel project is Danang - the industrial capital of central Vietnam.

It has no international standard hotel rooms although its airport complex is big enough to accommodate visitors travelling into the area.

D'Elegant already has a property in Hue, which is 700 kilometres from Hanoi in the north and 900 kilometres from Ho Chi Minh City in the south.

The US$7.64 million Century Riverside Inn Hue - had its grand opening on Sunday. It is first foreign hotel joint venture in Hue - between Thua Thien Hue Tourism and D'Elegant.

Hue is the home of Vietnam's ancient imperial court and receives assistance from UNESCO to preserve its historic and cultural heritage.

It had 120,000 visitors last year, mostly tourists.

Although Hue has become a major tourist destination, the city has only 500 international standard hotel rooms of a total of 3,000.

According to the hotel's general manager, Percy Tin Hitay, customers have to make bookings four to 10 months in advance because of the tight supply during the peak season between October and April.

Three planned hotel joint ventures - two with Malaysian groups and one with a French company - plus plans to extend the existing hotel, would help fill the gap by providing more than 470 rooms over the next few years, he said.

Tourism authorities also said more visitors could be attracted to the city if the airport was expanded.

Plans to expand the facility have been hit by finance problems with many tourists being forced to travel via Danang.

Mr Shih said the average time for a return on investment for hotel developments in Vietnam was about five years.

The company already has invested more than US$10 million in Vietnam, including other infrastructure projects.