The Hotel sign

One would imagine that with so many new buildings and ongoing constructions in Thimphu there should not be a shortage of apartments, but apparently demand still outstrips supply.

The problem is that a lot of the upcoming structures are not apartments- but hotels.

Surprisingly, people still want to build more hotels when there are clear signs that there is an oversupply and what is even more surprising is banks still giving hotel loans.

Going by the numbers there are predictions that the time is not far when hotels in Thimphu will start seeing a spate of bankruptcies- starting with most ill experienced ones who just followed the herd.

However, the question to be asked is as to why this is happening.

Thimphu’s hotel glut perhaps will best illustrate the problems in Bhutan’s economy.

The hotel rush is happening because there are not many other areas of the economy where people can invest as easily and where there are clear incentives to do so.

The Banks in turn are lending heavily to hotels as they do not have many other productive areas to lend to and even if hotels fail they will still own well leveraged assets like land.

In fact, if hotels start failing, banks will become among the largest owners of prime real estate in Bhutan.

The hotels in turn are counting on ever increasing and unsustainable regional tourism numbers whose large numbers threaten brand Bhutan and much more.

It is another matters if these numbers can keep increasing given the slowing Indian economy and also the impact of mass tourism on Bhutan.

The amount of loan money absorbed by hotels is so large that it has contributed to a liquidity crunch in the banking system.

It maybe a bit late to start doing any revaluations, but it is not too early to start charting a different course for an increasingly lop-sided economy.

A strong economy begins with a strong, well-educated workforce.
Bill Owens

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