Prices, Profitability Worry Hotel Investors

Profitability, restrictions and land prices are said to be the main concerns of foreign investors seeking to build hotels in Iran, according to a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture.

In an interview with the official website of the chamber (tccim.ir), Alireza Khaef said three sticking points have emerged during talks with international hotel groups mulling entry into Iran’s emerging tourism sector.

“The first issue they all bring up is the matter of profitability; they need assurances that their rate of return on investment will be high,” he said. “They also wonder whether they can transfer money out of the country without hassle.”

Khaef noted that the second problem is that of government interference and restrictions.

Iranian hoteliers have long accused Iran’s Cultural Heritage, Handicrafts and Tourism Organization of “meddling” in their affairs and have made repeated calls for more autonomy.

“Restrictions imposed by the government are offputting, especially since foreign investors are not clear on what they can and cannot do,” he said.

This is while Mohammad Khazaei, deputy minister of economic affairs and finance, said in an investment conference in October laws supporting foreign investment, which have been approved by the parliament, offer full guarantee against all non-commercial risks.

“Foreign investors need not be concerned about the repatriation of capital and profits overseas, as it is guaranteed by the government as per the law,” he said, adding that the guarantee is not legally required but will offer protection and reassurance.

Khazaei noted that since March 2015, guarantees worth more than $9 billion have been issued for foreign investments.

The last point of contention pertains to astronomical land prices.

“Purchasing a plot of land in Iran, especially in Tehran, costs a lot,” Khaef said. “Investors we’ve spoken to say the prices are so high it almost doesn’t make any financial sense to open up a property here.”

  Facilitating Investment

According to Khazaei, the National Development Fund is ready to offer loans but investment through personal capital is preferred.

Based on Iranian laws, no foreigner is allowed to own property in Iran but foreign investment law allows ownership of land once the applicant registers a company in Iran.

Besides, all activities in the fields of hospitals and tourism can enjoy 100% tax holidays for three to 13 years, depending on the location of the business.

Officials say they have received multiple offers from reputable hotel groups to expand their businesses to Iran.

In an interview with Financial Tribune last week, Gholamheydar Ebrahim Bay Salami, managing director of the semi-private Tourism Holding Company, said his office is holding advanced negotiations with famous foreign groups, such as France’s Accor and Spain’s Grupo Martinon, to build 30 hotels in major cities.

There are over 1,140 hotels in Iran, fewer than 140 of which have four and five stars, which experts and insiders say has stymied the growth of the nascent tourism sector.

Tourism authorities aim to increase Iran’s inbound tourists by fourfold to 20 million by 2025, a rather ambitious goal but one that they feel is achievable, given Iran’s untapped potentials.

Observers say Iran needs at least 400 high quality lodging facilities to accommodate the projected 20 million travelers.