Stand-alone hotels unviable in Sri Lanka due to high construction, capital costs

ECONOMYNEXT – Standalone hotels are not viable in Sri Lanka due to excessive construction costs, high domestic interest rates and depreciation, an international leisure executive has said.

“It may be a nice thing to have a standalone hotel, for ego, but in investment perspective, I would say run away,” Dilip Rajakarier, chief executive of Thailand based Minor Hotel group said.

Rajakarier was speaking at the Cinnamon Future of Tourism Summit 2019 in Colombo.

Sri Lanka taxes steel to high levels to give super profits to politically connected ‘domestic producers’. Other construction materials including tiles, electrical and aluminum fittings are also taxed, according to critics. Some taxes have been reduced in recent years.

Different types of steel are taxed at 30 and 15 percent import duty, with 15 percent value added tax, 7.5 percent, 2 percent nation building tax and a 15 rupee per kilo cess generating taxes on taxes.

Meanwhile Rajakarier said large hotels have to look at alternative revenue streams.

“You sell residences, you sell timeshare, and you sell, office, retail spaces and all those things. And then the hotel model becomes much more sustainable,” Rajakarier said.

He said domestic interest rates were high and the rupee also depreciated.

“The cost of capital is quite high, if you borrow in Sri Lanka rupees, and the currency’s devaluing as well. So they it’s a double edged sword. So you need to be careful as to how you fund.”

Sri Lanka’s structurally high interest rates are a natural result of currency depreciation which comes from to contradictory policy which generate monetary instability and currency depreciation, critics have said.

Sri Lanka’s monetary instability had worsened since 2012. The rupee fell from around 4.70 to the US dollar in 1950 to about 113 by 2012.

From 2012 to 2019, the rupee has fallen to 180 to the US dollar though three currency crises, with a more acute fall from 131 181 since 2015. (Colombo/Sept25/2019)

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