Zombie hotels await NAMA attention

IRELAND’S hospitality industry will not recover before 2015 as the sector continues to struggle with issues raised by zombie hotels, says Irish Tourist Industry Confederation (ITIC) chief executive Eamonn McKeon.

Visitor numbers have plummeted from Britain, USA, Germany and France, the source of 80% of all overseas guests. Hotel room rates have fallen, but a slow recovery in these four economies will keep numbers low until 2015, says the ITIC chief.

Meanwhile, the hotel sector is in limbo awaiting NAMA’s decision on what to do with the zombie hotels, those under-occupied monuments to Ireland’s era of building tax incentives? So what is a zombie hotel?

Eamonn McKeon explains: “I would describe a zombie hotel as one where you’d have to ask, ‘Why did they build that giant hotel out there miles from any regular footfall?’ I’m slow to name one for legal reasons, but they’re clearly those giant hotels which don’t have a viable future.

“Many of those hotels are owned by banks, by people who availed of tax incentives that should have stopped in 2002. The scheme was a good idea in the early 1990s, when we needed more hotels. Why the scheme was extended remains a mystery.

“The banks are now renting rooms in Dublin for €40, while competing hotels have to charge €150 to make a profit. That is an unfair advantage. It’s great for the consumer, but it’s just not sustainable for the industry.”

The ITIC predicts a further 10% fall in British visitors this year, to below one million. The tax incentives were based on predicted visitor numbers of ten million per annum. Just 6.9 million visited last year, and this year is likely to be even lower.

Eamonn McKeon adds: “The tax incentives caused the excess of beds. Banks and other non-hoteliers found they could build a hotel for, say, €70m and claim that back at €10m a year over seven years against taxes they could have been paying on their other businesses.

“But what happens if you claim back €30m in one year and the hotel then closes? Do you now have to finally pay those taxes? Some hotels wanted to avoid paying that tax, but the Government said no. And that is why the banks haven’t closed the hotels. They don’t want to pay the taxes before the seven years are up.

“What will NAMA do? I honestly don’t think NAMA knows right now as they’re dealing with other matters first. But if these hotels are not viable, they’ll probably have to sell them. One at a time, not to flood the market.”

Tourism Minister Mary Hanafin confirmed there will be no tax amnesty, and highlighted instead the cheap deals on offer to tourists.

However, Minister Hanafin said: “Some hotels will close, but we must be careful not to lose the viable hotels. The zombie hotels are the ones offering the best rates at the moment. Some banks are keeping hotels open just for their asset value.

“We will be encouraging NAMA not to act swiftly, not to let this run for a number of years, but to look at it this at the end of this year. Some hotels have asked if they could avoid the clawback on the tax breaks. That cannot happen.”

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