A new wave of investments in the hotel sector has brought both opportunities and challenges in terms of profitability and sustainability.

 

--BY TAMISH GIRI

 

After seven months, it will be Visit Nepal 2020. The goal of this second national tourism promotion campaign (The first was VNY 1998) is to welcome two million foreign visitors. The Visit Nepal 2020 campaign aims to achieve twice as many travellers than the goal set for Tourism Year 2011 and four times bigger than that of Visit Nepal Year 1998. With the campaign just months ways, the target set by the government has been facing criticism from tourism experts who question whether the country, in its current state, can reach the lofty expectations of the campaign.

 

However, the recent upward trend in tourist arrival number has been contrary to the assumptions of the critics. Nepal set a new milestone in tourist arrivals in 2018 by recording almost 1.2 million foreign visitors. The growth has ascended this year as well, and 216,614 foreigners have already arrived in the country (by February 2019). However, the critics, who were silent after the incline of tourist arrivals on a year-to-year basis, are now worried about hotel space. The country and its hotel entrepreneurs are concerned about the availability of hotel beds to service the targeted two million tourists and to ensure that their stay is comfortable. 

 

 

Enough hotel rooms to host the arriving tourists?  

Back in 2011, when the previous tourism campaign targeted a million tourists, the number of ‘star hotels’ in Nepal was 117 plus 909 ‘tourist standard’ hotels. The combined tally of both segments was 1026 with an additional 150 homestays. The hotels recorded 9,506 beds in the star category and 25, 017 in the tourist standard category; the total count of beds was 34,523 excluding homestays. As per the record of 2017, the number of both star hotels and tourist standard hotels had risen to 125 and 979, respectively. 

 

Narayan Prasad Bhattarai, a senior officer of the Tourism Department, informs New Business Age that 130-star hotels, 625 tourist standard hotels and 226 homestay services are currently registered at the department. Among the star hotels, 13 are five-star, 8 are four-star, 33 are three-star, 45 are two-star, and 31 are one-star.

 

The combined number of hotel rooms of both star and non-star categories is 25,000, out of which 20,300 rooms are located in the Kathmandu valley alone. Hotels outside Kathmandu make up 4,700 rooms, informs a report of the Hotel Association of Nepal (HAN). Likewise, the total number of hotel beds reported by HAN is 41,000, and almost 9,000 of them belong to hotels in Pokhara.   

 

Deepak Raj Joshi, CEO of Nepal Tourism Board (NTB) informs that hotels have never been an obstruction to the tourism industry. “The tourism campaign previously failed its goal due to political instability and not because the country lacked hotels. In our campaign this time, infrastructure, mainly the narrow international airport and the roads which are the means of connectivity are the major problems,” opines Joshi. He informs the country has sufficient hotel rooms to accommodate the incoming tourists. “The country already has sufficient hotel space to fulfill the tourist goal of Visit Year 2020, additionally many new hotels are also starting their operation soon which will extend the hotel space for tourist arrivals next year,” he adds.

 

Shreejana Rana, executive director of Annapurna Group of Hotels, expressed similar views. “The government’s target of two million visitors is an ambitious figure, but with all parts of the hospitality sector and government agencies working together, we are optimistic that we will reach this figure,” she states. 

 

 

A Hotel Boom

The coronation of late king Birendra in 1972 brought the first boom in the Nepali hotel industry. During the years adjacent to it, the country saw the opening of many new hotels and expansion of the several existing ones to accommodate the VIP guests and tourists from all across the world coming to participate in the royal ceremony. However, the boom did not last long as the number of tourists, particularly the high-spending ones, declined. The gradual growth of the hotel sector post-1990 was brutally hit by the Maoist insurgency and a period of protracted political instability leading to the closure of several hotels in the early and mid-2000s.   

 

However, the current new wave in the hotel sector is looking more sustainable. Unlike in the 70s and 90s, the key supportive factors this time are rising global tourist numbers aided by the massive use of technology, attraction of large Nepali business houses in the hotel industry and influx of foreign hotel chains in the country. 

 

At present, the country is witnessing the rapid growth of hotel development and the number of hotel rooms and beds are likely to increase after new hotels begin operations. The number of hotel rooms will increase by ten percent in 2020, according to a report published by HAN. “With the current pace of hotel development, hotels will add at least 2,000 new rooms in time for the Visit 2020 campaign, with 1,000 belonging to the ‘star’ category,” informs Binayak Shah, general secretary of HAN. He claims that the number of hotel rooms will further increase by 10,000 in the next five years. 

 

In Nepal, star hotels, boutique hotels and resorts are the main categories that accommodate high-end foreigners and domestic tourists. Besides such properties, tourist standard hotels, as well as homestays, offer their services to economically minded travellers. According to NTB, currently there are 11 operational and two non-operational five-star hotels in Nepal. Soaltee Crowne Plaza, Hyatt Regency, Hotel Annapurna, Hotel Radisson, Hotel Yak and Yeti, Hotel Shangri-La, Hotel Malla, Pokhara Grande, Soaltee Westend Premier, Tiger Palace Resort, Hotel Central Plaza are the five-star properties that operate here. Meanwhile, the Everest Hotel and Fulbari Resort are the two inactive five-star properties. Hotel Everest has been inactive since the 2015 earthquake and is expected to resume its business by November 2019, but Fullbari Resort’s operational date is yet to be confirmed. Amatya Group, the former owner of the resort, is arranging talks with prospective administrators to hand over the resort back to the Group. Shah states that the resort at Pokhara is unlikely to resume its operation in time for Visit Nepal 2020, and might resume service only after the Pokhara International Airport begins operations. 

 

The number for resorts according to HAN is 33, with Gokarna, Meghauli Sarai, Tiger Palace Resort and Fishtail Lodge being the most luxurious ones available in the country. The resorts established with a forest theme situated in Gokarna and Bharatpur cater to high-spending tourists. Besides, Hotel Himalaya, Hotel Shanker, Swiss Int’l Hotel Sarowar, Hotel Siddhartha View, Cygnett Inn Krishna Hotel, Hotel Opera, Hotel Ichchha and Hotel Mystic Mountain offer four-star services to guests in Nepal. Hotel Dwarika, Hotel Bajra, Hotel Sambala, Hotel Tibet and Yak Khara are some premium boutique hotels in Nepal. Further, Aloft (Chhaya Center), Marriott Kathmandu and Hotel Pawan Palace are three new five-star properties that are likely to debut by the end of 2019 to add more hotel space for tourists during Visit Nepal 2020.  

 

 

Growing investment in the Hotel Sector

The hospitality industry has made most of the fact that popular travel websites such as Lonely Planet and Trip Advisor have kept listing Nepal among the most favourable destination for global travellers. The hotel industry is on an upswing owing to the current trend of tourism growth. Visitors from all over the globe travel to Nepal for various purposes, making the hospitality industry one of the primary sources of income for the country. This has led to a rise in the number of hotel projects. The Department of Industry (DoI) registered 453 new hotel projects between 2014 and the first week of March 2019. The combined investment of the projects totaled Rs 80.96 billion. 

 

This is a record number of new hotels registered at DoI. Once they begin operation, the registered hotels are set to add 21,311 new beds to the current total. Further, the Nepal Investment Board for the first time in its history has received a hotel sector focused investment pledge. A group of Nepali investors has pledged to invest USD 139 million to establish a five-star hotel and two three-star hotels.    

 

Likewise, many business houses in Nepal are attracted by the growing tourism market and have invested in hotel properties. Chaudhary Group, the country’s largest business house, is extending its venture in the hotel sector with two new hotel projects. Earlier this year, CG Hotels inaugurated Vivanata Hotel, a 175-room deluxe property in Jhamsikhel and is also developing a 100-room midscale full-service hotel in Tripureswor. The company has injected a total of Rs. 2.3 billion in the hotels. Likewise, Dugar Group, one of the country’s renowned business houses is planning to make its debut in the hospitality sector with a 102-room property. The company has invested Rs 1 billion in the project.           

 

Furthermore, investors from both inside and outside the country have brought some popular international hotels chains to Nepal, Hotel Marriott and Dusit Thani being two prominent examples. Hotel Marriott, an American multinational hospitality chain, entered the hotel business in Nepal with the Fairfield Marriott Hotel, a three-star franchise. Fairfield by Marriott is a 115-room property developed by the MS Group of Nepal. Three more five-star hotels of Marriott are being developed in Kathmandu, namely Sheraton Kathmandu, Aloft Kathmandu, and Kathmandu Marriott. 

 

Renowned Nepal born Australian business tycoon Shesh Ghale is developing Sheraton Kathmandu in Thamel with a staggering Rs 8 billion investment to enter the hospitality business. Likewise, Chhaya Devi Group of Companies is developing an additional chain of Marriott called Aloft Kathmandu Hotel close to Chhaya Center in Thamel. Aloft Kathmandu is being established with a staggering investment of over Rs 5 billion. A source at Chhaya Devi Group informed New Business Age about the company’s plan to develop another hotel as well which will be the first seven-star hotel in Nepal. The company is looking to establish the property outside Kathmandu but within the capital’s periphery. 

 

Two years after it forayed into the lucrative hotel business with the opening of Fairfield by Marriott Kathmandu at Thamel in June 2017, MS Group has added yet another hotel property in its portfolio. The five-star Kathmandu Marriott, the fourth franchise of the American hotel chain in Nepal, was ‘soft-launched’ on the Nepali New Year day. With an investment of Rs 4.5 billion, the new 214-room deluxe property situated at Naxal is the first five-star hotel to open in Kathmandu Valley after 20 years. The newly inaugurated hotel has started providing hospitality services to its guests with the first ever hydraulic parking system in Nepal alongside 20 luxury suites, a presidential suite and 193 deluxe rooms. According to the Tourism Department, the three five-star franchises hotels managed by Marriott will add around 673 deluxe five-star rooms to the country’s hospitality industry. 

 

Likewise, other Nepali investors are eyeing Dusit Thani, a multinational Thai hotel chain. Dusit Thani, well renowned for its Buddhist and fundamentalist theme, can promote Nepal’s image in the world says an investor. “We have invested over fifteen million USD for establishing a 100-room hotel property of five-star luxury category in the Dhulikhel Municipality. The hotel will likely start its operation from the second quarter of 2020,” says Ramesh Hamal, managing director of Omstone Asia, a Thailand-based real estate developer and consultancy.  The company also has a special focus on the hospitality industry. 

 

 

Major Hotels in Expansion Mode 

To cash in on the emerging opportunities, some big Nepali hotel brands have concentrated their efforts in expansion. In early 2018, Soaltee Hotel Limited opened the Soaltee Westend Premier at Nepalgunj in partnership with other investors, which in February 2019 received five-star status. Taragaon Regency Hotels (Hyatt Regency Kathmandu) has plans to open a separate 150-room four-star hotel property primarily targeting Chinese visitors and an international standard exhibition centre with a car parking capacity of 1,000 within its current area. Similarly, Taragaon Village, a unique Boudha-based cultural market project to cater to the growing and evolving tourism sector is also being planned for investment.

 

Meanwhile, Shangri-La Hotels and Resorts is also planning to operate its new resort property in Begnas, Pokhara by 2021. Sameer Banarjee, area general manager at Shangri-La Hotel and Resorts, informed New Business Age that the company is establishing an eco-friendly 61-room resort named “Lost Horizon” with five-star facilities and a sustainable energy plant for energy efficiency. The resort will also have a private swimming pool and a helipad.  Likewise, the company is also planning to open hotels at Chitwan National Park and Shivapuri National Park.

 

Besides, established hoteliers are opening new properties that are separate from their existing companies. For instance, Prabhakar SJB Rana, chairman emeritus of Soaltee Hotel Limited, is constructing the 160-room five-star Siprabhya Hotels and Resorts at Ravi Bhawan, Kathmandu with an investment totaling Rs 5.4 billion. 

 

Economy, Employment and Foreign Exchange Collection 

As one of the world’s largest economic sectors, tourism creates jobs, drives exports, and generates prosperity around the globe. According to the World Travel and Tourism Council, the global economic impact of the tourism sector accounted for 10.4 percent of the worldwide GDP and generated 313 million jobs, or 9.9 percent of total employment, in 2017.

 

 “In the context of Nepal, the direct contribution of tourism to GDP was Rs 99.8bn, 4 percent of the total GDP in 2017, and was forecast to rise by 4.9 percent in 2018, and to rise by 3.8 percent per annum, from 2018-2028, to Rs 152.4bn, 4.2 percent of total GDP in 2028,” states a report of the World Travel and Tourism Council.

 

The report further informs that the total contribution of tourism to Nepal’s GDP was Rs 195.0 billion, 7.8 percent of the GDP in 2017, and was forecast to rise by 5.2 percent in 2018 and to rise by 3.9 percent per annum to Rs 299.5 billion, 8.2 percent of the GDP in 2028.

 

The direct contribution of travel and tourism to the GDP in 2016 was Rs 85.2 billion, or 3.6 percent. 

 

According to the report, tourism directly supported 497,500 jobs (3.2 percent of total employment) in 2017 and was expected to rise by 3.9 percent in 2018. It will further increase by 2.1 percent per annum to 638,000 jobs (3.4 percent of total employment) until 2028. The total contribution of tourism to employment, both direct and indirect in 2017 was 6.6 percent of total employment (1,027,000 jobs) and was expected to rise by 4.2 percent in 2018 to 1,070,500 jobs and further to ascend 2.1 percent per annum to 1,323,000 jobs until 2028.

 

Visitor exports generated Rs 72.5 billion, 28.0 percent of total exports in 2017. This was forecast to grow by 5.3 percent in 2018, and ascend further by 5.2 percent per annum from 2018-2028.

 

Shah informs that hotels alone are providing over 400,000 direct jobs and 1 million indirect jobs currently. According to him, 30 percent of the total employees in the sector are female. 

 

He further claims that the number of direct jobs in the hotel sector is likely to increase at least by 25 percent by 2020 and indirect jobs will grow further to one million in the coming five years. 

 

The 453 new hotels registered at DoI between 2014 and the first week of March 2019 will require 18,149 employees. 

 

According to HAN, hotels in Nepal generate 25 percent of the total government revenue and contribute two to three percent to the GDP of the country. Likewise, the sector is the major source of foreign currency earnings. The industry accounted for 24 percent of the total foreign currency earnings of the country, out of which 20 percent was collected solely by hotels. The country received Rs 72.5 billion in foreign exchange earnings from tourists in 2017.

 

 

Boutique Hotels 

Boutique hotels, small and mid-sized hotels with unique settings and themes, are also providing top-quality accommodation services to foreign visitors. To name a few, the neoclassical palace themed Kathmandu Guest House located at Thamel, the Newari craft themed Dwarika’s Hotel situated in Battisputali and the Tibetan themed Hotel Shambala at Bansbari have been providing unique experiences to their guests. Similarly, Hotel Tibet, Hotel Yak Kharaka are boutique hotels based on Tibetan culture. Jagatpur Lodge, a boutique initiative of Annapurna Hotel Group, has a ‘jungle safari’ theme. 

 

However, the Department of Tourism doesn’t identify and record boutique hotels as a category, but in recent times, boutique hotels have been strong drivers of tourism through their culturally inclined service. Each year, many new hotels in this category come into operation and hotel entrepreneurs have switched to the boutique hotel business. Karna Sakya, founder chairman of KGH Group of Hotels, is credited for initiating the boutique hotel category in Nepal with the opening Kathmandu Guest House in 1967. The group has further extended its business in various categories.

 

Tourism Products 

Of late, tourism entrepreneurs have introduced various activities to attract travellers and to make them stay longer. Hot air balloons, ultra light flight, zip flying, bungee jumping, swing jumping, and skiing are among some of the activities initiated to drive tourism. Others are sky diving in Pokhara and over Everest and helicopter rides to major pilgrimage and tourism sites. A new bungee site is soon to open in Kushma, offering the thrilling experience of jumping from 224 metres. It is ranked as the second highest bungee jumping spot in the world. Further, gyrocopters are making sightseeing more fun for nature and mountain lovers.  Additionally, travel agencies have discovered some new trekking routes including Khoparaka and Mardi to drive trekking enthusiasts into the country. 

 

Alongside those activities, lavish club outlets have been established in Thamel, the capital’s tourist hub. Hong Kong’s Prive Group, the most renowned party group of Asia, opened its outlet LOD Club in Thamel to entice party-loving foreign visitors. Additionally, entrepreneurs are exploring interesting new activity packages. For example, PATA Nepal, lead by Sunil Shakya, introduced the ‘cuisine tourism’ campaign a year ago to attract food enthusiasts. Meanwhile, a team lead by Shakya also introduced Himalayan Travel Mart to promote the potential tourist commodities belonging to the Himalayan Region.  Entrepreneurs in Bandipur, Ghalegaun, and Ghandruk have improved the homestay service and are promoting them widely. 

 

 

 

Diversification of Locations

The location of hotels, which were once Kathmandu valley-centric, has observed some significant changes in recent years. Earlier, major hotel projects were centralised in Kathmandu or at major tourist hubs like Pokhara and Chitwan. However, perhaps due to the effect of the federal structure or because of the growth of tourism, outlets of five-star hotels, boutique hotels and resorts are currently widely spread across the country. Two new five star hotels, namely Soaltee Westend Premier and Hotel Central Plaza started their business in Nepalgunj this year. Likewise, in 2017, Tiger Palace Resort received a five-star rating from the Tourism Department. The 100-room property situated in Kotihawa, Bhairahawa is the first integrated five-star casino resort in South Asia.

 

Similarly, Hotel Pawan Palace, is a five-star property with 148 deluxe rooms currently under construction in Lumbini with a staggering investment of Rs 1.35 billion. The hotel is in the final phase of construction and is likely to begin its operation from June this year. Nepal’s industrial hub Birganj, is also witnessing a growth of the hotel sector, albeit slowly. As Birganj is an industrial/trade destination and not a tourist area, hotel guests are mostly business people. However, this is changing slowly with the federal system. Diyalo Lords Plaza, a three-star hotel opened last year with Rs 1 billion in investment and is likely to receive a four star status very soon, according to Anil Kumar Rungta, owner of the hotel. Rungta says he invested in the hotel believing Birgunj will become a tourist destination in future. 

 

Eastern Nepal is also witnessing a growing number of high standard hotels in recent years. The under construction 105-room Hotel Mechi Crowne at Dhulabari, Jhapa, which is likely to start operation by the end of July 2019, will be established as the first five-star hotel property in eastern Nepal with an investment of Rs 3.5 billion. It is being constructed by Vegas City Entertainment. 

 

As an effect of federalism, investors have selected many new destinations to promote quality tourism and to extract the tourism potential of a location. Nepalgunj, Bhairahwa, Lumbini, Birganj and Biratnagar are all witnessing an input of investment in hotels, as they seek to become new tourist hubs. Furthermore, the government under its tourism promotion goal has identified 100 new tourist destinations for infrastructure growth.

 

 

Challenges

The position of tourism minister is vacant since the recent untimely demise of Rabindra Prasad Adhikari in a helicopter crash in Terathum. The passing of an energetic, committed and prominent tourism visionary, months ahead of the Visit Nepal 2020 campaign has raised severe worries among tourism and hotel entrepreneurs. Preparation and promotion of the tourism campaign have slowed down in his absence, and the absence of a tourism minister has led to a lack of leadership.

 

For ages, entrepreneurs have invested in the infrastructure sector of Nepal in the absence of proper government vision and assistance. Investors and hoteliers have cited the lack of future planning and ineffectiveness of the authorities as significant hurdles for the progress of hotels. Because the government has failed to provide the needed support and direction to hoteliers, the scenario of infrastructure development has remained stagnant for a long time. Thus, hotel investors observe the investment scenario of the country to be fraught with risks and suggest that the government should consider alleviating some of the risks and make investment a more

secure proposition. 

 

Furthermore, the cost of doing business and the difficulties associated with it is another factor that hinders the sustainability of hotels. “The major challenge for hoteliers is that our industry is intertwined with the promotion of our tourism industry. We need to improve infrastructure, marketing and connectivity,” says Rana of Annapurna Group of Hotels, adding, “Our product must be able to compete against a variety of attractive tourist destinations and hotels in our region and globally.”

 

The cost of setting up a major hotel project in Nepal is high in comparison to other countries in the South Asia region.  Hoteliers inform the expenditure of input materials in Nepal is expensive and constitutes a major part of their investment. According to their experience, the cost of constructing a star hotel room in Nepal is 35 percent higher compared to China. Likewise, the supply and demand for hotel rooms is another significant risk for the sustainability of the hotel business. Hoteliers inject billions to establish their properties, and the time taken for a return on their investment is extended because the input delivery is slow. Other challenges and setbacks holding back progress are the government’s set of rules and regulations and the government’s delayed execution and its failure to meet the delivery of major infrastructures on time. Investors also claim that the miserable situation of the country’s sole international airport is the result of such poor execution.

 

Note: According to HAN, the average length of tourist stay in 2018 was 12.3 days, the number fell by 0.3 days corresponding to 2017. Likewise, per day spending of foreigners in 2018/19 is recorded as USD 44, falling from USD 53 in 2017.