THE ESTABLISHMENT of the National Asset Management Agency (Nama) means that hotels with unsustainable borrowings and debt levels are being kept open, threatening the viability of the entire hotel sector, the chief executive of the Irish Hotels Federation (IHF) has warned.

Addressing an Oireachtas Joint Committee on Arts, Sport, Tourism, Community and Gaeltacht Affairs yesterday, John Power said insolvent hotels should be encouraged to exit the market.

“Under normal conditions, the market would force hotels with unsustainable borrowing and debt levels to fail,” he said.

“However, this has not happened, primarily due to the reluctance of banks to realise losses and write down loans advanced to hotels that have no prospect of recovery.”

Mr Power said hotels which benefited from tax allowances in the past are remaining open for seven years in order to allow investors to retain capital allowances.

He called for the removal of clawbacks on tax reliefs for hotels, which he said would encourage so-called “zombie hotels” to exit the sector.

Fáilte Ireland’s Redmond O’Donoghue said that, while the continued operation of “zombie hotels” presented a serious challenge to the sector, the removal of the claw-back might not be a sufficient incentive for hotel owners to exit the market as the capital allowance may not rest with the hotel owner.

There would also be significant public sensitivity associated with such a move, he added.

Mr Power noted that prices have fallen by more than 20 per cent in the last 18 months.

He strongly criticised the “unsustainable pricing tactics” undertaken by hotels owned and supported by financial institutions and which have high levels of funding exposure.

According to the IHF, occupancy rates at Irish hotels have fallen by 15 per cent since 2007 and are now at 55 per cent, a level not witnessed since the early 1980s.