“The 1.8 Trillion Rupee Bubble: Is Nepal’s Hotel Boom About to Burst?”

Sunday, Mangsir 28, 2082

Despite massive investment in Nepal’s hospitality sector, utilization remains low as tourist arrivals have not kept pace with production capacity. Currently, more than 142,000 hotels, restaurants, and guest houses are in operation in Nepal with a total investment exceeding NPR 18 Kharba (1.8 trillion).

While there are 32 licensed star hotels, only about 25-26 are currently in operation (as some, like Annapurna, Shangri-La in Lazimpat, Fulbari in Pokhara, and Hilton, are either closed or not in operation). The number of new star hotels currently in various stages (construction or finishing) is nearly equal to the number of those currently operating (approximately 25 to 30 new hotels are being added).

Banks and financial institutions have extended approximately NPR 350 billion (3.5 Kharba) in loans to the hotel sector. According to the latest economic survey, there are 1,416 hotels providing 54,370 beds in Nepal.

Although the total capacity of hotels can serve 3.5 to 4 million guests, only about 33 percent of this capacity (occupancy) is currently being utilized. According to Binayak Shakya, President of the Hotel Association Nepal (HAN), while it was estimated that 1.2 million tourists would visit in 2026, arrivals have only reached around 1.147 million so far, leading to low utilization.

“No Immediate Need for New Hotels”

President Shakya states that there is no immediate need for new hotels in Nepal, as only one-third of the total capacity is being utilized.

“Looking at the immediate situation, we are in a state of hotel ‘over capacity.’ Only one-third of the capacity is being used. However, investors (especially international chains) are not investing for today. They are investing seeing the potential of the huge markets of India and China 15-20 years down the line,” says the HAN President. “Investment is necessary for the long-term future. However, the current challenge is to improve infrastructure and double tourist arrivals.”

According to Nepal Rastra Bank data, credit flow to the hospitality sector stands at NPR 300 billion.

According to Shakya, the confidence of international tourists (especially high spenders) has been weakened by security questions arising after the ‘Gen Z movement’, travel advisories issued by 8-10 countries, news of prisoners escaping, and the looting of police weapons. Consequently, international chain hotels are in a position where they are either cancelling or putting their plans to come to Nepal on ‘hold’.

Huge Investment, Low Utilization, and Loan Renewal Problems

Despite massive investment and production capacity, Nepal’s hospitality sector is currently plagued by the problem of surplus capacity (over-supply). As a result, its economic potential has not been fully utilized.

Based on current market value, it is estimated that around NPR 18 Kharba has been invested in the hotel sector (a figure roughly equivalent to the national budget). However, only one-third of Nepal’s hospitality capacity is being utilized.

While Nepal Rastra Bank data shows NPR 300 billion in loans to the sector, Association President Shakya notes that problems with loan renewal have begun to surface due to current instability and low utilization.

“Because of the over-supply of hotel rooms and only one-third utilization, businesses are operating at a daily loss. In this situation, there is no capacity to pay principal and interest within the time limit amidst rising interest rates. Consequently, pressure from banks for repayment and auctions has become the most complex problem for the industry,” he said.

According to him, it is absolutely essential to extend the deadline for principal and interest payments (restructuring) in a practical manner to revive the hotel industry, which faced a slowdown again before it could fully recover from the impact of the COVID pandemic. He argues that although the government has declared it a “national priority industry,” the Rastra Bank needs to treat it like a special industry, maintaining interest rates at no more than 1 percent above the Base Rate and providing easy refinancing facilities.

The Nepali hotel sector has seen massive investment, equal to the national budget. This investment targets the future massive markets (India and China). However, a cycle of loss has been created in the present due to a lack of infrastructure (airports and highways), security concerns, and a lack of loan concessions.

Situated between India and China, if Nepal can attract just 3 percent of the 280 million ‘holiday makers’ from these two countries, it could bring in 5 million tourists.

If policy issues are not addressed in time, other hotels will be forced to collapse gradually, unable to pay bank loans, much like the hotels in Bhairahawa.

Security and Travel Advisories

Security concerns following the ‘Gen Z movement’, travel advisories issued by 8-10 countries, and news regarding escaped prisoners and looted police weapons have weakened the confidence of international tourists (especially high spenders). Large groups like Thomas Cook are in a state of cancelling or holding their plans to visit Nepal.

Other Challenges in the Hotel Sector

State of Infrastructure: The inability to operate Bhairahawa and Pokhara International Airports and the chaos on highways connecting major tourist destinations (Pokhara, Chitwan, Lumbini) have increased security risks for tourists arriving by road from India.

Policy Ambiguity: The government lacks a clear national strategy and action plan to attract tourists from India and China (where 180 million Chinese and 100 million Indians travel abroad). Declarations like “Tourism Decade” change without being implemented.

Future Prospects and Investment Outlook

Nepal, situated between India and China, could bring in 5 million tourists by attracting just 3 percent of the 280 million holiday makers from these neighbors. Since spending begins as soon as tourists arrive (via airport or border points), this would immediately assist the economy in revenue generation.

The entry of international chain hotels (3 dozen brands like Moxy) suggests they see the potential for tourism growth 10 to 15 years down the line.

They view short-term problems as temporary. The situation where 50-year-old hotels (like Sherpa, Blue Star, Narayani, which closed earlier) lost their market while new hotels with international access thrived is repeating itself today.