The Joe Economy on Hotels
My former Economic Policy lecturer Alan Ahearne was keen to his students about the huge opportunities that exist within the hotel market in Ireland. I followed up his assertion with an in depth researched report that is archived with the National University of Ireland Galway. In short, both Alan Ahearne and indeed myself would consider Ireland to be a potentially profitable country for overseas hotel owners to invest in. I recently talked about investing in Bitcoins, similarly an Irish hotel is becoming an increasingly popular investment opportunity.
So why Ireland?
From the mid-1990’s Ireland experience unprecedented economic growth until early 2007. During this
period of sharp growth, heavy investment in property and buildings throughout the country. The economic prosperity saw an increased number of new hotels built in the Republic of Ireland. An investment of €4 Billion saw an additional 470 plus additional hotels in over 10 years. It has been suggested that there are now over 850 registered hotels in Ireland.
As a result of the world economic collapse in 2008, Irish property prices declined sharply resulting in financial difficulties for the Irish Banks. Commercial prices were said to have fallen in Ireland capital, Dublin to 60% of it’s value back in 2007. As debt defaults loomed and unemployment soared, Irish hotels did not escape the economic disaster. Since the economic collapse property prices crashed over 50% in some Irish regions leading to severe debt overhangs of over €6 Billion in Ireland’s hotel sector. At the present time around 100 of the 850 plus Irish hotels are currently insolvent and/or in possession of banks and the Irish National Assets Management Agency (NAMA).
Property prices averaged a drop of over 50% throughout Ireland since 2008. Statistics gathered by Alan Ahearne suggest that hotels are selling at 6-8 times their annual profit potentials. At these prices it is quite reasonable to argue that Irish hotels yield a massive potential for overseas investors.
Tourism in Ireland
An important factor for investors is the Irish government’s drive to increase tourism over the recent years, most notable the 2013 ‘Gathering’ campaign. In 2013 the visitor rates to Ireland increased by over 6% with a staggering 19% increase in visitors from the USA. Irish cost competitiveness has increased since the economic collapse of 2008 resulting in a greater number of tourists visiting the country. The tourism results have attracted the attention of overseas investors to the opportunities in Irish hotel sector. To add to this, hotels in Ireland are the main source of tourist accommodation as there are a limited number of hostels and B&B’s are decreasing in numbers year on year.
The Irish Labour Market
Throughout the years of economic prosperity in Ireland, the country lost its wage competitiveness which caused wage inflation in all its labour sectors. As the Irish economy overheated, wage rates were among the highest in Europe. The hotel industry had staffing difficulties during the Irish boom with a 4% unemployment rate and high wages. The situation is very different at the present time. Unemployment in Ireland is currently at 12.9% and wages have decreased substantially to more competitive rates comparing to neighboring European Union nations.
The Irish Tax Rate
Overseas investors to Ireland have benefited from the country’s much criticized low 12.5% corporation tax. Over 1000 multinational corporations have benefited from the 12.5% corporation tax in which the hotel industry also benefit from this low tax rate.
There are may reasons why one would Invest in Irish hotels when you take on board the analysis above.