Oh, for a few thousand more hotel rooms

TRENDS 2006-2007

A booming economy has every chain worth its salt building for the future, but there's little to show for it this year and next.

Fake a call to any five-star hotel in Delhi or Bangalore, ask for a room and you might be surprised by the room rates.

$300 is the norm but it can easily go up to $450-500 if the standard room isn't available! Room rates in the top 10 cities of India have gone up by 30-55 per cent in the last one year, which, says Manav Thadani, managing director, HVS International-India, is not a healthy long-term trend. It is likely to turn away leisure traffic as well as the lucrative conference segment from India.

No wonder all major international hotel companies are sneaking into India (some are making big noises as well!).

According to Manbeer Choudhary, past president of the Federation of Hotel and Restaurant Associations of India (FHRAI), the hotel sector is getting an investment of $250-350 million of which 70 per cent is foreign direct investment (FDI). The Indian government allows 100 per cent FDI in hotels.

Move beyond this rosy picture and the thorns might prick you. India needs at least 1,00,000 rooms across the country by 2010.

For the Commonwealth Games in 2010, the NCR region needs a minimum of 10,000-15,000 rooms, but the pace at which things have progressed in 2006 has scared industry members.

To begin with, let's talk about the land auctions in Delhi carried out by Delhi Development Authority. The authority tried to auction 22 land plots for hotels across Delhi, but hasn't managed to auction them all.

Prices of DDA land have been astronomical to say the least. Earlier in the year, two five-star hotel sites at Jasola in south Delhi fetched Rs 388 crore against a reserve price of Rs 118 crore. Emaar MGF bagged both the plots.

Thadani feels that some of the auctions are happening way beyond the justifiable price for a hotel project. Internationally, land cost is 15-20 per cent of the total hotel project cost.

In India, traditionally it has been high at about 30-40 per cent but recently, it has gone up to 50-60 per cent of the total project cost, making some of the projects unviable. The solution: higher Floor Space Index (FSI) and stricter parking norms for hotels. Lahore has an FSI of 12 compared to 1.75 in Delhi.

What is encouraging though is the number of international chains entering the Indian market. Hilton Hotels Corporation has announced that it would create a joint venture company with DLF to develop and own 75 hotels and service apartments over the next seven years.

Accor formed a JV with Emaar MGF to bring the Formula-1 brand of budget hotels to the country. The JV Budget Hotels India plans to develop 100 hotels adding upto 10,000 rooms.

Mumbai will get a Four Seasons in a couple of months; Lodhi Hotel in Delhi is now being renovated as an Aman resort; there is plan for a Ritz Carlton in Bangalore; Shangri-La is already there in Delhi and more are coming up in Bangalore; there's talk of an Oriental Mandarin... the list goes on.

The demand for budget hotels too is growing at a very fast pace. According to Thadani, about half of the current demand, countrywide, is for budget accommodation.

Earlier, Accor had announced plans for at least 25 budget category Ibis hotels along with InterGlobe Hotels; now the latest plan for 100 Formula-1 hotels along with Emaar MGF; Lemon Tree is looking at more hotels and the same company is launching another budget brand Red Fox; Sarovar Hotels has firmed up plans for its Hometel brand... so the list goes on. Many budget hotel brands have also ventured into smaller cities like Chandigarh, Haridwar, Rudrapur, Nagpur, Coimbatore, Visakhapatnam, Vijayawada.

"There have been a lot of announcements but how much will come on the ground will have to be seen,"says Thadani.

Happily, some states in India like Rajasthan, Andhra Pradesh and Uttar Pradesh have started creating land banks, offering specific concessions to hotel developers.