Eligible hotels will be exempt from the 10 per cent municipality fee on daily room rates.

Shape of things to come: a dinosaur serves as an advertisement next to the booth of the IMG Worlds of Adventure project. Antonie Robertson / The National
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Dubai plans to give new mid-market hotels a municipal tax reprieve in an effort to meet demand for such properties.

The eligible hotels will be exempted from the 10 per cent municipality fee levied on the daily room rate.

“We don’t have enough mid-range hotels in this market,” said Steven Miller, the senior vice president of business development at the Dubai-based Indian construction major Shapoorji Pallonji International.

“A group of people needs luxury, not all. And even when you have disposable income you travel differently as a couple than when you travel with children.”

Investors in new mid-range hotels will receive the tax waiver if the construction permit is granted between October 1 this year and December 2017.

The move is expected to boost Dubai’s supply of three-star and four-star properties.

“A number of hotel properties are either under construction or in the planning stages in Dubai,” said Helal Saeed Almarri, the director general of Dubai’s Department of Tourism and Commerce Marketing (DTCM). “This incentive has been designed to bring those properties to market sooner.”

With the waiver, DTCM is also seeking to attract the growing number of travellers from China, the sub-continent and Africa.

Dubai, which aims to draw 20 million visitors annually by 2020, has some of the highest average room rates in the world. Last month – which was considered a lull season because of Ramadan and the Eid celebrations – the average daily room rate touched US$228.99 in Dubai, according to HotStats Mena from TRI Consulting.

In more mature hotel markets, such as the United States and Europe, mid-scale and budget accommodation comprises more than half of the market’s bedroom stock.

But in Dubai, five-star hotels dominate; they have a market share exceeding 60 per cent and about a 50 per cent of pipeline supply.

“However, for every person who could afford to stay at a five-star hotel, there were probably more 100 who could not, said Jonathan Wall, the assistant director of property advisory at Deloitte and Touche Middle East, in July.

“There is therefore a significant gap in the hospitality and tourism market that is currently not being catered for, and Dubai hoteliers will need to start focusing less on five-star hotel accommodation and more on mid-scale and budget accommodation in order to realise Dubai’s tourism growth vision,” Mr Wall said.

He added that companies, especially small and medium-sized companies for which luxury hotel accommodation can constitute a significant cost burden, were expected to welcome the development of budget hotels.

“It is also likely to encourage additional stopovers by transit tourists for whom the option becomes more affordable,” Mr Wall said.

Even so, the effect of more budget hotels is unlikely to put pressure on the high room rates here.

“The introduction of mid-scale and budget accommodation to the market in significant room numbers, combined with the five-star hotel development pipeline, may have a dampening effect on the four-star and five-star hotel rates,” Mr Hall said. “However, given development time scales, we are unlikely to reach this position in the short term.”