An Obsolete Law: Hotel conversion

The new tourism law, widely being referred to as the "hotels' law" because it is said to concentrate almost exclusively on hotels' needs, might not be quite as accommodating as the hotels had hoped. They might, for example, not have been expecting to have pay for conversion of obsolete hotel stock over and above what they will pay for the work to be carried out. But the new law has a catch. Two in fact.

The catches apply to hotel buildings that would be converted into apartments for sale. One is that not all the building can be converted for this purpose; 10% would have to be set aside for other purposes, such as shops or restaurants. The other is that a 5% tax will have to be paid on the value of the building, money that would find its way into upgrading the tourist area in which it is located.

Designating a part of the building for other purposes is in line with what happens with the construction of apartment blocks. But it is a regulation that has not been without its critics. It reduces the return on investment on building or conversion and it simply adds to a stock of units that are hard enough to fill as it is. Paying a tax might seem reasonable enough, but whether it would really be allocated for local modernisation, who's to say.

The obsolete stock that the law has in mind covers two types of current accommodation, one of them being rather vague as it applies to old hotels in "mature tourist areas", the other being one and two-star/key hotels and apartments. As far as the latter are concerned, there are various possibilities, but they are all aimed at elimination. They can be converted to residential use, upgraded to a minimum of four-star rating or be closed down.

An issue with all of this is just how many hotels might be affected. A further issue is whether conversion to residential use is in fact viable, either because of the cost to the hotel or to a potential market which is in the doldrums as it is.

Hotels, you might think, aren't short of a bob or two. Many aren't, but, and as I reported on 12 July this year ("For Sale: Hotel, Needs Work"), there are plenty of hotels that owners would gladly see the back of, if they could sell them, and plenty of hotels for which the cost of conversion would be prohibitive. The solution would be to sell the hotels to developers, but in the current market climate, how likely would this be?

One doesn't know the number of "obsolete" hotels, but were it to be a significant number and were they actually to be converted and not simply abandoned (thus creating eyesores), to what extent would the overall number of hotel places fall, and especially in the "mature tourist areas"?

There is an argument that a reduction in the number of places would be no bad thing. Indeed the government wants to avoid an "over offer" of hotels, even if a decline in the number of places would be potentially bad PR for governments which love to be able to declare statistics of ever-growing numbers of tourists.

Let's suppose, however, that these hotels were to be converted. What do potential owners of apartments that these buildings would comprise want from their investment? Not all of them would want to live in them. The alternative is that they want to make a return, and that means renting them out. You can probably see where this is going.

Potentially releasing a whole load of privately-owned apartments in tourist areas smacks of the government not thinking things through. Buyers could rent them out - for residential use. But not for tourism use. Not as holiday lets, because they wouldn't be legal. Or would they?

The other type of conversion that hotels will be permitted to undertake is to provide condos. But they, too, are subject to market demand. Owners would at least be able to make a return through the apartments being also part of a hotel's offer; indeed they would think it essential, as they would personally be limited to only two months use a year.

There are, therefore, a number of unknowns lurking in the provisions of the new law. It is a bold law in that it sets out an agenda for modernisation, but in issuing a tourism law that is a law for the hotels, the government needs to be sure that its objectives can be met. The closer you look at the law, the more the questions arise.


Any comments to andrew@thealcudiaguide.com please.