The Bhutanese Leading the way.
Be it Thimphu, Paro, Phuentsholing or Bumthang, there is a growing crisis of oversupply of hotels leading to dwindling hotel occupancy rates and along with it rock bottom rates.
This is also encouraging cheaper tours and budget tourists to come to Bhutan.
So far, it has only been hotels owners pointing out the sustainability issue, but now the Tourism Council of Bhutan (TCB) is listening and it will recommend to the government to reconsider the fiscal incentives granted to hotels.
Confirming this, the TCB DG Dorji Dhradhul said that TCB will recommend a revisit of the fiscal incentives wherever there is an oversupply of the hotels, which are in places like Thimphu, Paro, Phuentsholing, Punakha, Bumthang and other places.
The DG said that that instead the incentives will be recommended for Dzongkhags like Gasa, Lhuentse, Zhemgang and Dagana which are part of the Tourism flagship project and also other Dzongkhags in the east and south that need hotels.
The DG said that, for now, the TCB will write to the government on the issue.
It has been learnt that the government is taking a relook at the entire fiscal incentives and the the TCB wants those for hotels to be reviewed.
The massive growth in the number of hotels have had two main causes. One is the tremendous growth in regional tourists over the last few years but the other cause has also been fiscal incentives granted from 2010 onwards.
New TCB rated hotels get tax exemption while importing fixtures for construction and then get a 10-year tax holiday. Existing hotels that upgrade and get a TCB rating get a five-year tax holiday.
The DG said that TCB will also be doing a detailed study of the hotel situation in Dzongkhags that already have an excess supply of hotels so that TCB can also inform and advise hotels coming up there.
He said, “We want to have information whereby we know how much hotels are there compared to the number of tourist arrivals for the next five years and if anymore hotels should be built.”
The DG said that fiscal incentives for hotels should now be location specific.
TCB will also be doing a reclassification of hotels where it will even want to classify budget hotels and only the classified ones with certain standards will be allowed to keep tourists.
Currently, only TCB certified hotels which are three star and above get fiscal incentives.
One problem for the TCB is that while around 200 three-star and above hotels are under TCB the vast majority of around 600 to 700 budget hotels do not come under it, but instead fall under the Department of Cottage and Small Industries (DCSI) under the Ministry of Economic Affairs.
This does not allow TCB to monitor or regulate them.
Here, the TCB DG said he has talked to the DG of DCSI and the DG is supportive to transfer all hotels under the TCB as a single authority.
The Hotel and Restaurant Association of Bhutan (HRAB) Chairman Sonam Wangchuk said that the fiscal incentives are till 2020 and should not be removed before that. He said that it is only in 2020 when the government should see whether to continue or not.
Sonam said that things like imposing the SDF fee on regional tourists and now relooking at the fiscal incentives are all coming together which shows that people are only looking at the negative impact and not the many more positive impact of the hotel industry.
Sonam said such a change in the policy midway would make it difficult for people to invest in other fields in the future.
The Chairman also underscored that the incentives are only for three-star hotels and above and pulling it away would not stop the many budget hotels which are anyhow coming up.
A hotelier on the condition of anonymity said that one reason for the excess rush to build hotels is due to lack of other investment opportunities.
One issue with an excess supply of hotels is reduced rates which has encouraged a form of mass tourism as Bhutan as being sold as an affordable destination, especially in India.
The HRAB Chairman said that the government should not restrict the numbers but let the fittest survive.
When asked if this is advisable given that hotels carry huge bank loans which are public money he said that Bhutan has around 3,000 tour operators and only around 300 are really working of which 15 to 20 tour operators do most of the business.
Sonam again blamed Airbnb and private apartments being let out as hotels for the low rates. He said that most of the regional tourists coming to Bhutan are in their early 30’s and mid 40’s and many of them look for Airbnb accommodations. He said if such unlicensed accommodation is banned then it will take care of half the problem.
The HRAB head also said it is not fair that budget hotels owned by Bhutanese are targeted while FDI hotels owned by foreigners, where the money leaves the country, is given preference.
According to sources the HRAB itself has inner conflict. There is a large number of hotels who want a cap or that new ones are discouraged, but again there are hotel owners who plan to build more hotels or chains and so oppose such a move.
This has left the HRAB in a confused state complaining abut low occupancy but also not asking the government to stem the growing tide of new hotels. Up to 200 hotels are currently under construction all over Bhutan but focused mainly in areas that already suffer from a glut.
The HRAB head said that while tour operators and guides blame hotels for mass tourism and lowered rates he said that the tour operators and guides are to blame.
Sonam said that around 40 percent of regional tourists come through tour operators.
He also pointed out that it is the tour operators in Bhutan too who bargain with hotels and drive down rates.
He said this is not just in the case of regional tourists but also dollars paying tourists. Sonam alleged that while the package is USD 250 a day there is undercutting and as a result hotels are forced to provide rooms and meals at very low rates. He said on top of that tour operators don’t pay on time and hotels have to keep chasing tour operators for even six to seven months to get payment.
