Solidifying the Hotel Sector

Kathmandu, July 27-With a gradual growth in the country’s tourism industry, there has also been an unprecedented uptick in the hotel sector. 

 In 2016, the number of foreigners visiting Nepal saw a whopping growth of 40 percent to reach 753,000 and the momentum continued in an encouraging way in 2017 also. In the last year, there was the inflow of 940,218 tourists in the country, up by 29 percent compared to 2016.  Since Tourism Vision 2020 has already been announced to draw 15,00,000 by the year 2020,  the number of foreign tourists are expected to increase further in the upcoming days.   

In fact, such positive signs have lately drawn a great deal of interest and investment in the hotel sector, according to the Hotel Association of Nepal (HAN) sources.

Presently, there are around 1050 quality hotels in total across the country offering 39,000 beds in 24,000 rooms across the country.  The average occupancy rate of the Nepali hotels hovers around 65 percent.

 

The HAN says that the existing hotels could cater to 1.6 million tourists every year. Likewise, the service standard of Nepali hotels, according to it, is at par with that of the foreign hotels located in countries like India, Malaysia, and Singapore.

  The hotel sector boasts of the investment of more than Rs 500 billion. The directives of the central bank make it mandatory for the banks and financial institutes (BFIs) to float at least 20 percent of their total loans to a productive sector like tourism. As such, there has lately a consistent upsurge in the investment volume made by such institutions into the hotel business. 

The total amount of credit floated by the BFIs into the hotel and restaurant sector so far is estimated at around Rs 70 billion. 

  Around 10,000 hotel rooms are being constructed at various parts of the country. The establishment of 25-to 30 new star rated hotels, in particular, by 2020 will provide additional 4,000 rooms.   Within this year alone, 750-star rooms will be ready to serve the international guests.

In the next couple of years, the number of only five-star hotels to come into operations with the total investment of Rs 28 billion is 10.

As a matter of fact, big corporate houses and business tycoons are pouring bucks into hotel projects in collaboration with international hotel chains.

CG Holdings, a unit of the Chaudhary Group, is undertaking the project of building a 200-room five-star hotel in Lalitpur by entering a management contract with the British multinational hotel company InterContinental Hotels Group. To be operated under the brand name of Holiday Inn, it will be completed by 2020.

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Similarly, Nepal Hospitality Group (NGH), a subsidiary of the MS Group, is constructing a 221-room five-star hotel under the management of Marriott at Naxal in the capital with a total cost of Rs 2.5 billion.

Not only inside the capital, but there are also plans to undertake big hotel projects in other places of the country with high tourism potentials. For example, the Shangri-La Group, which is running Hotel Shangri-La Kathmandu and Shangri-La Village Resort Pokhara, plans to establish a new deluxe resort near the Begnas Lake in Kaski district.

The entry of new players in the hotel business with huge investment is certainly a good sign. However, there are serious concerns that the unfettered hotel building spree could also backfire.

There is a breakneck expansion of hotels without properly evaluating the demand and supply of hotel rooms.  It may eventually cause a downturn in the price and quality in the hotel sector,  according to the HAN.

On the other side, the sustainability of the very sector is also said to be at stake.  “Currently, the hotels are paying as much as 40 percent of their total revenues for staff salaries through the international rate stands at just 10-15 percent.  “The level of a profit margin so low that we are facing difficulties to sustain in the market,” the hoteliers bemoan.

Exorbitant interest rate of bank loans, frequent strikes by labor unions and the unauthorized operation of houses and apartments in some posh areas of the capital like Baluwatar and Lazimpat as hotels are other problems hindering the smooth growth of the hotel sector.

The sector reserves profound potentials not only to help turnaround the tourism industry but also the country’s economy as a whole. The existing hotels are providing employment to more than 500 thousand people and also contributing a huge amount of revenues to the national coffer. So, the government and hotel entrepreneurs should make joint efforts to streamline the growth of the hotel sector.

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