Year of mixed fortunes for Rwandan hotels as some face the axe

Despite the end of year’s bullish run that at one time saw all five-, four- and three-star hotels in Kigali get fully booked for a good stretch, it is not all rosy for the hotel industry, with suggestions coming in for a tailored credit line to help salvage the industry.

“As an industry, it has been a year of mixed fortunes, insecurity and Ebola outbreak in the neighbouring countries have affected us, but access to finance is still a big problem for the industry,” said Nsengiyunva Barakabuye, the President of Rwanda Hoteliers Association, who also owns Nyungwe Top View Hotel in Nyungwe.

He said the repayment period and interest rate instituted by many banks in Rwanda is putting a lot of pressure on hotel operators, and that the banks don’t give them enough gestation period to pay back the loan.

“We need a special credit line to support the industry, we are trying to do some advocacy to this effect” Mr Barakabuye said.

Auction

KCB Rwanda is currently on the verge of auctioning off one of the country’s premier hotels, Ubumwe Grand Hotel, as the bank seeks to recover $18 million (Rwf 15.8 billion) outstanding loan.

The bank issued a notice of intention to foreclose on the facility after Ubumwe’s developers failed to service the loan.

Although the date of auction has been extended from the earlier 10 December to 24 December, the hotel is still in the red zone.

The owners may have to pull off something short of extraordinary to salvage the property.

In 2015, the association of small and medium hotels reported that up to 100 hotels were up for auction by commercial banks, an issue that sent shock waves through the market.

Although interventions from various institutions paid off at a certain extent, where some loans were renegotiated, some hotels were auctioned off, while others were restructured into other services and uses.

Former Alpha Palace hotel, which was one of the embattled properties, was transformed into university premises, while former Landster hotel was turned into office space.

When Rwanda Today sought the opinion of Konde Bugingo, a banking sector expert, he said the issue is much bigger than the hotel industry itself, that from a macroeconomic standpoint people do not have disposable income to keep the hotel industry afloat, yet it cannot only rely on tourists for sustainability.

“It is not an isolated case. The economy is not strong enough to sustain the sector and the capacity of the people to spend is very low.”

“Everyone is in a fix, the economy is not doing well, the middle class is shrinking instead of growing, and bank shareholders want their money, therefore banks set interest rates that are based on these factors,” Mr Bugingo said.

Government’s strategy

Despite these hiccups, the hospitality industry has continued to grow, riding on the government’s strategy of transforming Rwanda into an attractive meetings, incentives and conferences destination, a strategy that seems to be paying off.

However, the returns are also not evenly distributed across the industry, as the strategy seems to favour the high-end hotels more.

The hotel industry saw entry of new players like Onomo hotel and Ramada, which is expected to open before the year closes, while three-star leaders like City Blue hotels is soon opening another property in Rusizi.

The advent of Onomo hotel drove the number of quality hotel rooms in Kigali to 524, which includes Onomo’s 109 rooms, Marriott Kigali’s 254 rooms and Park Inn by Radisson’s 161. Ramada Kigali is expected to add 154 more rooms.

In general the Kigali market has remained challenging for hotel operators who are reporting low occupancy rates.

The 2018 East Africa Hotel Review by JLL, an American real estate firm, says the occupancy rate in Kigali’s quality hotels has averaged 49 per cent, yet the industry’s average needs to hit 70 per cent to remain profitable.

The report shows that investors in Nairobi’s hotels struggle most to attract customers with an average of 47 per cent occupancy rate, Dar es Salaam at 52 per cent and Kampala at 56 per cent.

It is this low occupancy rate that has seen some developers lose their property to lenders through auctions after failing to service the loans, while others have closed operations.