Debt-laden Hotel Leelaventures planned to open its sea-facing, 14 storeyed luxury hotel in Chennai, also its first in Tamil Nadu, by March this year.
Though the Mumbai-based company, which has luxury properties under the 'The Leela' brand, has overshot its target already its not the first time as this 329-room property was initially supposed to open doors for guests in early 2011.
Leela is not the company whose project has got delayed. Several projects, especially those involving first time developers have run into time and cost overruns. According to market expert HVS India of the 102,000 rooms under construction, only 75 per cent may come up in the next five years.
With interest rates at least 300-400 basis points higher than during the planning phase and significantly higher construction costs, several developers have suffered from a liquidity crisis leading to delay in putting new inventory on stream.
Similarly, some projects of India's oldest hotel chain Indian Hotels Company (IHCL), especially under the mid-scale Gateway, brand are running behind schedule. The Tata Group-promoted IHCL tied up with a few new players with zero experience in hospitality sector for some of their projects.
"The new players have had their own challenges with their core business and so some of our new management properties are running behind schedule", said a senior executive of IHCL to Business Standard earlier.
New players with business backgrounds in areas completed detached from hospitality segment such as mining, construction, garment and textiles to name a few had lined up to invest in new hotel projects. Due to a slowdown in core business of some of these companies the pace of development of new hotel projects have also taken a hit.
US-based Marriott International, one of world's largest hotel chains, has committed to add two new properties every month till 2015. The company, which mainly focusses of management contracts, has tied up with various partners in India.
John Woolley, Area Director of Sales & Marketing India, Maldives and Australia, Marriott Hotels India, said, "The reasons for the delay could range from six months or more than that on account of shortage of finance or raw materials or delay in securing required clearances. Its certainly tough on our partners who build the hotels because of the interest rates".
Marriott has 15 properties as of now and plans to have 85 more across multiple brands ranging from luxury to mid-scale by 2015. Though the target, as per market watchers, appears steep the company says it is confident of getting close to it.
"With project delays eating into the moratorium period, several loans have come up for restructuring and refinancing. With the relatively muted outlook for the industry over the next few quarters, lending appetite has contracted significantly", stated a recent report by rating agency ICRA.
ICRA's portfolio of under development hotels has seen significant downgrades during the current fiscal owing to liquidity constraints, added the report. "Cost escalates the moment projects get delayed or stalled. Finding new investors for such stalled projects in many instances gets extremely difficult", added a analyst.
Paul Logan, senior VP, development, Asia, Middle East and Africa, Intercontinental Hotel Group, said, "The primary impact is on interest rates. One of the great concerns for developers is the cost of finance and ability to secure finance. India has longer gestation period for new hotels compared to some other countries. construction management and project management can cause delays".
However, demand for rooms continue to be healthy in India as it supply pales in comparison to any mega city in the world. According to HVS, there is currently no city that has branded supply in excess of 13,000 branded rooms in India with Delhi NCR having about 12,700 rooms and Mumbai about 11,300 rooms.
Both these cities are viewed as the main gateway cities of India and neither of them house substantial branded room inventory. Beijing, for instance, has nearly 130,000 rooms while Las Vegas has nearly 142,000 rooms, according to HVS.
