Hotel operators in the Gulf region may need to modify their room rates and their overall fee strategy starting next year to continue to appeal to consumers following the introduction of Value-Added Tax (VAT).
VAT, which will be imposed at a 5 per cent rate starting 2018 across the GCC (Gulf Cooperation Council), has the potential to alter consumer behaviour by discouraging guests from booking hotel rooms, according to a report from HVS, a global hospitality consultancy.
HVS said the tax is likely to particularly impact price-sensitive, millennial travellers, and said that hotels may need to alter their pricing to continue to attract guests in that demographic.
In its report, HVS said the Middle East will witness a “healthy influx of three-star hotels entering the market,” amid the abundance of four- and five-star hotels.
“As this mid-market expands with contemporary, yet affordable branded hotel products, primary markets will be susceptible to significant average rate pressure. However, our outlook remains optimistic in light of the region’s tourism potential, which will ultimately support high levels of accommodated demand,” the report said.
It cited forecasts from the World Travel and Tourism Council for the Middle East that expect travel and tourism’s contributions to gross domestic product to reach $382 billion (Dh1.4 trillion) by 2027. This growth is expected to be supported by tourism investment, which is expected to rise 6.4 per cent a year over the next 10 years, reaching a total of $99 billion.
Discussing outlook for the sector, HVS also said leisure-oriented markets in the Middle East will continue to face challenges in attraction international attention.
“However, events such as Dubai Expo 2020, and Qatar’s hosting of the 2022 Fifa World Cup, and increased visa issuances permitting foreign pilgrims to enter Makkah and Madinah will largely aid in these particular markets’ ability to increase accommodated demand in the mid to long term,” the report said.