Ireland's hotel sector insolvent

Dublin - The building splurge during Ireland's booming economic years has left the recession-hit country's hotel sector insolvent and 25% of rooms should be closed down, an industry study said on Wednesday.

The Irish Hotels' Federation survey said that in the last 20 years the number of hotel rooms has mushroomed from 21 000 to almost 60 000 but business has plummeted as the economic downturn ravaged the tourism industry.

"The significant drop in the value of hotel property combined with the high level of debt in the sector now points to a situation where, taken in its entirety, the sector is insolvent," the report says.

It blames the surge in hotel building on special tax deals, the easy availability of cheap credit and planning authorities' wish to incorporate hotels into developments during the boom years.

The consultants who carried out the study estimated there was a negative net asset value of just over €17 000 per existing hotel room last year.

Normally, the report says, market forces would have led to hotel closures but instead, largely as a result of banks' reluctance to realise losses and write down loans, they are being run at below cost.

This was dragging down older established hotels that were otherwise viable.

The report says that unless urgent action is taken to remove some 15 000 hotel rooms the sector will undergo a "major and chaotic shakeout" over the next couple of years.

- AFP