During the Friday meet, the Prime Minister Lyonchhen (Dr) Lotay Tshering, in response to a question said that that the number of hotels in the country has increased over the years because of a flaw in the policy where fiscal incentives were provided to hotels indicating people should invest more in the sector.
He said that at the same time the government cannot come up with the a policy saying no hotels shall be constructed.
PM said, “The increase in the number of hotel is because of the defect or flaws in our policy but I personally feel that when we talk about policies, we must have a long term plan”.
He said, “In the past in order to encourage people to invest in hotel, fiscal incentive was given and as a result people invested in the sector without any limitation. Now all the people want to invest in hotels and even private houses are converted into hotels but if we come up with the policy which states that no hotel shall be constructed further, this would not be right”.
Lyonchhen said, that the increasing number of hotels is a concern but both government and the the hoteliers should play an active part. He said one should be able to see beyond four walls and people should also see whether this sector or industry can grow or not.
He said, “As there was need for advisory body which would advise the government and people on important decision regarding business activities, the private sector development board was formed and with this board, the board will advise the government and the government will advise the public where they should invest based on market force and potential of government to change its policies”.
“We will also work with the banks and Royal Monetary Authority of Bhutan and see how we can play with the interest rate on the loans we are providing because at present the interest on some sectors are very high and interest in hotel and service sectors has come down significantly to 8 per cent”, he said.
“Government will do what it is supposed to do and at the same time businessman have to be clever and those who are clever and see beyond the four walls can do well”, he added.
The PM said that the government cannot immediately do away with the fiscal incentives on hotels as this would be a knee-jerk reaction but more study was needed.
The over supply of hotels has become a major source of concern for not only for the hotel industry which is seeing dipping occupancy rates but also the financial sector and potebtially the entire Bhutanese economy.
In 2013 the tourism loans, which were mainly hotel loans, was only the fifth highest loan component at 15.46 bn, but by 2018 it stood a close second with Nu 28.38 bn.
A growing concern is that with attractive fiscal incentives from 2010 onwards there has been a massive oversupply of hotels and beds.
The oversupply is so huge that even the high growth of tourists in the last few years have not been able to catch up.
Ironically, even the tourism growth has been regional tourists who prefer cheap accommodations but a lot of hotels that have been constructed are the higher end ones. The ground results is reduced occupancy rates in a sector that already suffers low occupancy rates.
Hoteliers says that if nothing is done to check hotel constructions then the next few years will witness massive hotel bankruptcies that can affect the financial sector.