How Israel plans to boost hotel investment (and reduce tourism costs)

In a bid to boost hospitality investment, Israel is looking to classify its hotels as "national infrastructure," cutting time for building approval and facilitating overall development. (National infrastructure can be approved by a fast-tracked National Infrastructure Committee.) The plan, which was announced Wednesday and will be brought for cabinet approval Sunday, would also boost tourism by reducing the cost of hotel stays by 20 percent over the next five years, according to Finance Minister Moshe Kahlon and Tourism Minister Yariv Levin.

Levin believes the plan to be a win-win situation for all sectors of the industry. “The program will ensure that entrepreneurs will not be forced to go through the bureaucratic ordeals, and the construction of a hotel in Israel will no longer be a dream.”

As Levin told the Jerusalem Post, the plan will help add 15,000 hotel rooms within five years and 27,000 hotel rooms in 10 years. Only 3,000 new rooms were built over the last decade, leading to a supply shortage that boosted prices some 70 percent. The plan also includes a clause that would allow independent local committee to approve rights for residential hotel additions up to 20 percent of the hotel.

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Israel Hotel Association president Eli Gonen welcomed the move, but said that there are government-approved decisions that could bring down prices in the next year instead of five years down the road. Specifically, he cited plans approved (but not legislated) in 2012 and 2014 that would ease regulation, which he said is more cumbersome in Israel than in the average OECD country.

The plan
According to Globes, the proposal would cut the average time to open an Israeli hotel in half to five years (down from a decade). The red-tape is a deterrent to hoteliers; businessman Alfred Akirov, owner of Mamilla Hotel and David Citadel Hotel in Jerusalem has repeatedly said: "I have no intention of opening new businesses here because of the burdensome regulation; I'll just maintain the existing ones."

"Hotel construction will no longer be for the die-hard, and will begin in larger numbers," Levin said. "We are making a fast-lane to bring to one committee all tourism projects to be developed across the country. It will completely change the existing reality."

Kahlon, who campaigned on pledges to lower housing, banking, and other consumer costs, said that he would back any plan that helps reduce prices, raise efficiency, and spur growth, according to Bloomberg. More rooms, and a greater number of international hotel chains, would increase the number of overseas visitors.

By the numbers
Over the summer, HVS noted that hotel occupancy throughout the country fell by a "relatively modest" 2 percentage points in 2014 to 69 percent compared with the previous year, while visitation to Israel fell by 3.6 percent, including a decline in cruise visitors. The overall shortage of hotel rooms has meant that average rates rose during this period, from $205 to $209.

Internationally branded hotels entering the market recently include Ritz-Carlton Herzliya (opened December 2013) and the Waldorf Astoria Jerusalem (opened May 2014), while the opening of the W Tel Aviv-Jaffa Hotel has been postponed until 2017. 

“The hotel market in Israel continues to provide interest and excitement, and despite the tensions the country is experiencing interest from international brands remains strong,” report co-author (and HVS chairman) Russell Kett said at the time.