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Who Controls the Assignment of Star Category to the Hotels in Georgia?

Who Controls the Assignment of Star Category to the Hotels in Georgia?

The history of the modern hotel business began with the doss houses and taverns, which had little to do with modern sophisticated hotels. In general, the hotel business is a very interesting topic, especially from a financial point of view.

It is associated with high risks and a number of factors are necessary to be considered  for a successful business.

One of them is  this assignment of “stars” that determine the prestige and the profitability of hotels.

Classification starts with one star (economy class) to 5 (deluxe class).

In Georgia, the hotel business is gradually being developed and improved, but according to experts, the industry still has a lot of problems, and often demand does  not correspond  to the supply, and the price to services quality.

The biggest problems are faced by  domestic hotels, which operate on a seasonal profits and are entirely dependent on the limited financial possibilities  of the owners.

According to the Ministry of Economy of Georgia, in 2014 the turnover of the hotel sector in the country amounted to GEL 730 million, which is 1, 6% of the total business turnover of the country. The hotel industry employs more than 30 000 people, their average salary is GEL 604 per month.

Ketevan Meladze, the head of the Hotels and Restaurants Association, talks about  the problems of the hospitality industry.

Which hotel categories are most developed in Georgia, and how competitive is the market?

High class hotels operating on the principle of franchising are best developed in Georgia, these are hotels like Radisson, Marriott, etc. They have their own requirements relating to international standards, and their implementation is mandatory.

Hotels of this class protect their reputation. However, in Georgia this market is not yet fully developed, respectively, great competition is not observed there.

At present several large hotels are under construction, and by 2017 their number will grow significantly. Many large investors intend to enter into Georgia and find their niche in the market.

How profitable are hotels in terms of financial gain, and what is the average payback period?

The hotel business is quite lucrative, it pays back in the initial stage. According to international practice, the average payback period of large hotels is  7-8 years, sometimes 10. The larger hotel, the higher income.  By  pessimistic estimates,  the profitability reaches  12-13% per year.

Construction of the hotel meant for  50-60 rooms costs  approximately  $ 5 mln – this amount includes everything – the cost of land, infrastructure, construction, etc.

The average construction cost is about $ 1 000 per square meter , including arrangement of rooms, connection to utilities, etc.

What type of hotels is currently in the greatest demand in Georgia?

Georgia as a tourist country must be focused on the middle segment, respectively, three-star hotels are most needed, but unfortunately, there is a deficit of just these hotels.

In recent years the number of hostels has  significantly increased, which to some extent satisfy the demand of  the average tourist and are mostly located in old Tbilisi. In general, throughout the world the price of one night in the hostel starts at $ 8, but in Georgia  it varies from $ 10 to 15.

However, the market in Georgia is  liberal, and prices will be regulated  within a few years.

Who controls the  assignment of  star category  to the hotels?

In developed countries, certain standards are introduced  to assign the stars, with regard to Georgia, it remains a subjective decision and clearly defined rules do not exist. Some time ago, the organization was established  to monitor this issue, but it has  not become popular in Georgia

In general, both the state and private organizations should be involved in solving this problem. In Georgia, many hotels call themselves four-star, but they don’t meet the stsndards, although they have big ambitions.

The representatives of a seasonal hotel business say they have to pay taxes on a seasonal basis and not during the whole year. Are any changes planned in this regard?

Seasonal hotels should have tax benefits. We had discussions on this issue with the Ministry of Economy, the decision is likely to  be made during the year and will give the hotel business to breathe easier.

Hotels, which operate only in the season, do not have to pay taxes throughout the year, as well as to pay utility bills on corporate rates.