The Bhutanese Leading the way.
If there is one sector of the economy to be concerned about right now, then it is the Hotel sector. This paper has done a series of stories showing the major issues in the sector already.
In 2013 the tourism loans, which were mainly hotel loans, was only the fifth highest loan component but by 2018 it stood a close second.
A big 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.
Even the tourism growth has been regional tourists who prefer cheaper 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 from falling occupancy rates every year.
If nothing is done to check hotel constructions, then the we will soon witness hotels going bust in large numbers.
The hotel crisis seems to have been developing for a while, but it has gotten much worse in the last one year.
One major issue is that the other upcoming or planned hotels seem to have no idea of this crisis or the fact that they are entering an already troubled sector. This shows that there is a complete lack of information for new investors and entrants.
The collapse of the hotel industry will not only hit our financial sector hard, but if it is big enough, then it threatens to harm the entire economy as any problems with financial institutions inevitably affects all other sectors.
Apart from this, there would be massive job losses and the financial ruin of many Bhutanese investors. It is high time that the RMA and the government take action.
It takes the passage of time and a clear peak in price to convince the vast majority of market participants that a bubble did indeed take place.
Barry