The issue over overcapacity in the hotel sector that is causing difficulty for many in the industry will be addressed by the National Asset Management Agency (Nama), Minister for Tourism Mary Hanafin has said.
The average room rate fell by 20 per cent from €97.69 in 2007 to €77.81 in 2009, and was down a further 10 per cent in the first six months of this year, according to preliminary estimates.
Speaking today on RTÉ's Morning Ireland, Ms Hanafin said competition with regard to pricing was "great for tourists" because they could get cheap accommodation. But she acknowledged it was "certainly putting the hotels under an awful lot of pressure".
Ms Hanafin said some hotels that had gone into receivership were now being kept open by banks simply to keep cash flow going.
A report published last month found fierce competition among hoteliers here has seen average room rates drop back to 1999 levels.
The annual study, by consultants Horwath Bastow Charleton (HBC), showed one-third of Irish hotels are having difficulty meeting interest repayments on their bank loans.
The Minister said she knew from speaking to people in the hotel industry that they were quite worried they would face a cash flow problem at the end of the season in October and November.
“The National Asset Management Agency is going to be dealing with hotels, particularly where we have an overcapacity. There is a problem where some banks are keeping some hotels open, just for the asset value.
“What we are worried about is that at the end of the day, those hotels will be gone, but so too will the hotels that are family run and that are quite traditional,” she said.
Ms Hanafin said steps needed to be taken to identify where these hotels were because there needed to be a range of quality hotels throughout the country, adding it would then need to be established whether these hotels got capital allowances or tax allowances.
“If they did, there’s a very difficult process about getting a clawback," she said.
“We have to ensure we don’t undermine those systems because we would be in trouble with Europe, and we would be in trouble with State aid there. These are the issues that we are working through now with the Irish Hotels Industry Federation and that Nama is working through as well.”
With regard to continuing employment in the sector, Ms Hanafin said the Government had ensured the employment subsidy scheme applied to hotels and they were taken into the scope of the Credit Review Group.
President of the Irish Hotels Federation (IHF) Paul Gallagher said there had been an overdevelopment of the hotel sector in some areas that had not been led by demand.
A lot of people had become involved in the hotel industry without the relevant experience or knowledge of what it meant to run a successful hotel business, he said.
A report commissioned for the IHF earlier this year identified overcapacity of between 10,000 and 15,000 rooms, but it had not named specific hotels, he said.
Mr Gallagher said he did not believe closing some hotels that were being kept open by banks would create a difficulty with employment, as many of the jobs would transfer to other hotels in the same areas. In addition, hotels were covered by the employment subsidy scheme, he said.
Mr Gallagher said the industry met the Minister on a regular basis and that she had been “very hands-on” in her approach to the issue and keen to address the difficulties.
Among the €80 billion in loans being sold to Nama are associated loans owing on hotels built and owned by developers moving under the agency’s control.
Sources with knowledge of Nama's plans said earlier this year that the agency may be forced to keep loss-making hotels open to protect revenues across a developer’s business.
Informed sources said the closure of hotels, which are benefiting from seven-year tax breaks for investors, could lead to “tax contamination” across the wider businesses of property developers.
They warned that tax changes to address loss-making hotels was an issue of Government policy, not a matter for Nama.