Sri Lanka hotel investments showing bubble signs
COLOMBO (EconomyNext) – Sri Lanka’s post war tourism boom has drawn a host of new investors some of whom could get "burned" because of bad marketing and planning and policy inconsistency, a top hotelier has warned.
Hiran Cooray, Chairman of Jetwing Hotels group, said the island’s tourism industry was able to compete on a level playing field only now, with the end of its 30-year ethnic war.
But the risks of investing in tourism had been increased by bad planning, changes in policy under different governments and the entry of new, inexperienced investors.
Local investors like John Keells, Aitken Spence, Jetwing and Hemas have expanded the industry till now but foreign investors and brands were needed to better compete globally.
"Now new conglomerates are coming into the business, some might get burned," Cooray told a legal forum organised by the Bar Association of Sri Lanka Thursday.
"Now there are several companies all investing in hotels, some of them will definitely get burned because the cost of construction is very high and if you don’t market your product you are dead."
He said that on the east coast, where investment became possible only after the end of the war, new resort areas were being developed without proper planning and marketing.
"Passikudah Bay is probably the best bay in the world but it now has a set of extremely badly built hotels and nothing else," he declared.
"Most of them are not hoteliers. They have no idea of marketing nor has the Tourist Board helped promote it as a destination and they are struggling."
Tourism is a very capital intensive industry with new investors often realising after the third year or so that money was being spent but returns were inadequate.
"Except in the Maldive islands, it takes a minimum of five years to make returns," Cooray explained.
"In the Maldives, in the first 2-3 years you can recover a good part of your investment."
So it is challenging to invest money when policies change with different governments giving priority to developing resorts in different areas.
"What’s important is one clear policy – not one that changes every few years," Cooray said.
He recalled how he advised the authorities against plans for mass tourism in Kalpitya, on the north-west coast.
"Kalpitiya is not ripe for mass tourism. It’s highly seasonal. Very good for wind power projects. For tourism it’s super for dolphin watching and kite surfing but that’s a very small market where you need only a few rooms, not big hotels."
Cooray said it was nice to see international brands like Shangri-La entering the market.
"If we are to move into the global level we need foreign investors and brands," he said.
"International brands have far greater reach than we have and can better position Sri Lanka. Also, their presence will help us to raise our own standards.
We think we are good but we have to benchmark and compare ourselves with the best in the world. Then only we get better."
However some analysts say closer to the budget end, many lower cost hotels have come up and are operating with the help of international booking engines which has increased price transparency.
In addition independent travellers and writers both international and domestic are also promoting the country through blogs and tweets with hashtags such as #srilankatravel and destination specific ones such as #galle, also emerging creating conditions similar to that of Vietnam where the communist authorities which had little knowledge of capitalism, stopped state planning and allowed locals and foreigners to unleash their entreprenuerial skills, creating unprecedented growth.