Major hotel projects are expected to launch soon.
The hotel business received a huge boost in July when a law was passed granting tax breaks to any hotel constructed before September 2012.
The breaks are designed to increase the number of hotels in Ukraine in time for the Euro 2012 soccer tournament, which will take place in Kyiv, Lviv, Donetsk and Kharkiv. But experts say hotel developers face a series of other legal and economic challenges to get hotels built by 2012.
According to the requirements of the Union of European Football Associations, Kyiv should have approximately 2,000 rooms in five-star hotels, 5,000 rooms in four-star hotel and 400 three-star rooms.
Meanwhile, experts’ estimates show that at the beginning of the 2010 the capital has a significant lack in the five-star segment, which had only 933 rooms, and even a larger deficit in the four-star segment, with 1,432.
To help to boost the construction of the hotels, the parliament passed amendments to the legislation that free newly built and already operating hotels from paying value-added tax for the next 10 years, for those opened by Sept. 1, 2012.
The tax holidays will come in force on Jan. 1, 2011 and will be applied to five-, four-, and three-star hotels.
“Such tax incentives are very good news for hotel investors, and definitely provide additional stimulus,” said Roman Kostenko, a partner at Asters law firm.
According to Euromonitor, a global consumer market consultancy, Ukraine has plenty of ground to make up on its Eastern European neighbors.
Euromonitor says that by 2009, the country had 812 operating hotels. Meanwhile, there were 1,746 hotels in Poland, which is co-hosting the Euro 2012 games along with Ukraine, 1,090 in Romania and 3,231 in Russia.
But with two years left until Euro 2012, experts say that despite the tax breaks, the three-week tournament is not, alone, a sufficient incentive to build a hotel, and plenty of other challenges exist for developers looking to open hotels in the country.
“Euro 2012 is a one-time event, but business has to think about the future for years ahead. As a rule, Euro 2012 alone is not a reason to build a hotel,” Kostenko said.
When deciding about building a hotel, investors consider the long-term future of the area and its business activity.
From this perspective, there a lot of reasons to build a hotel in business and tourism centers, like capitals. But it is more difficult in regions, like Donetsk or Kharkiv.
“Apart from a friendly tax environment, to proceed with investments, business needs a friendly economic environment,” Kostenko said. The financial crisis that hit Ukraine in 2008 dried up financing.
Apart from economic challenges, many who want to build a hotel by 2012 could face mounting legal and procedural challenges. According to legal experts, there are two major areas of difficulties.
“First, getting a piece of land to build a hotel and, second, obtaining the necessary permissions to start construction,” Kostenko said.
In the most positive scenario, it may take up to a year to find and buy a land plot and then another one or two years more to collect all permissions to start construction works, he added.
In a recent hotel industry report, global real estate consultancy Knight Frank said there is a small chance to finish construction of a new hotel in Kyiv by Euro-2012 starting from now, if a company doesn’t have land plot and construction permissions.
According to Knight Frank, the most attractive areas for starting a hotel business are Western Ukraine, such as the Lviv, Ivano-Frankivsk and Zakarpattya Oblasts and the south coast of Crimea.
Kyiv Post Staff writer Olga Gnativ can be reached at [email protected].
