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10 February, 2016 09:10 AM Source: Financial Times - Sri Lanka
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Sri Lanka’s tourism proposition needs to go for a complete shift to bring in a Compound Annual Growth Rate (CAGR) of 60% which will in turn translate to a $ 15 billion opportunity by 2018 year-end.

At the current state of affairs tourism earnings CAGR will be contracted to 30% which is $ 7 billion, if the proposition remains unchanged, a report by Capital Alliance Holdings (CAL) research arm showed.

According to the report, a focal lagging point which could obstruct targets is the discrepancies between hotel pricing points which may cost the regulated hotel market $ 480 m by 2018 year-end as an overspill of apartments cater to tourists alongside a plethora of informal hotels and home stays which amount to 36% of the total room nights. In this context regulated hotels have lost $ 97 million in 2014 at 90% occupancies.

The report observes that over 3,000 luxury units will hit the market, bringing the total to 4,884 by 2018; which is an increase of 65% from the current figure of 1,839 units. The majority of these properties are expected to be brought under investment purposes due to the hefty price tag of $ 850,000 which is beyond the means of an average household’s ability to bear. Subsequently this means the majority of these households will be rented.

Moreover CAL stresses that the negative outcome could be owing to the mismatch of pricing schemes of graded city hotel rooms in Sri Lanka. “Compared to regional peers, local city star graded hotels are at a 15% premium. Also Colombo’s competitiveness is limited by the options available to tourists and is further limited due to the older properties in operation, which currently account for 70% of room inventory. As a result, the shift towards supplementary and unregulated options has increased,” said CAL Head of Research Purasisi Jinadasa.

However the Daily FT recently reported that Colombo city hoteliers were content with the current pricing strategy as they claim it has gained more positives than negatives to the leisure industry, mainly as means to reinvest into refurbishment measures. According to Colombo City Hotels Association President M. Shanthikumar, refurbishment costs in recent years amounted up to $ 120 million.

The research firm projected that luxury apartments could be rented out at a lesser cost than luxury hotels, making the former option more economically viable.

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