Mad rush to build hotels in ‘expensive’ India

Font Size

Print

Feedback

Email

Discuss

Related Articles

Strike halts Haldia Petrochem projectADB to provide up to $700 mn loan for infra projec...HSL to build large shipyard in AP or OrissaGovt approves Rs 10k cr highways projects

Mumbai, April 30:: Developers are rushing to build hotels in India to fill an estimated shortfall of 150,000 rooms, but rising financing, land and construction costs could dent profits for many of them.

With room rates rivalling and often surpassing those in Hong Kong and Tokyo, hotel owners and operators in India are keen to make a name in a market expected to draw millions more travellers as incomes rise and new airports and roads are built.

But some industry executives say developers are taking on risky projects based on room-rate assumptions that could turn sour.

With about 50,000 rooms under construction, premium rates of $500-$600 per night are widely expected to drop, while land prices have quadrupled in many areas over the last three years.

Meanwhile, construction costs have risen by around a quarter in the last year, and salaries have jumped thanks to a staff exodus to new Dubai hotels and cruise ships.

"I wouldn't be surprised if there's a bit of a bloodbath," said Uttam Dave, chief executive of Interglobe Hotels, during a conference held at a JW Marriott hotel in Mumbai, which charges $450 per night.

"Construction quality is getting better but it's expensive. To get quality challenges the entire economies of a project."

Because all of India has only 86,000 hotel rooms, not many more than the 73,300 in New York City, room rates are at a big premium to those in other developing countries in Asia.

A Crowne Plaza hotel that opened recently in the New Delhi suburb of Gurgaon boasts average revenue per room of $330 per night, compared to about $260 for the more up-market InterContinental Hotel in Hong Kong and $150 for top-notch hotels in Bangkok.

"Developers assume these rates will carry on but they're unsustainable," said Paul Logan, head of Southern Asia development for InterContinental Hotels Group Plc, which owns the Crowne Plaza brand.

"There'll be corrections of up to 50 percent."

Local players

"We don't think room rates can go any higher and the cost of operations is rising, so the pace of growth will slow," said Manav Thadani, managing director at HVS Hospitality Services.

"But existing players will still continue to do very well for the next couple of years. Gross operating profit margins in India are still at about 43 percent, compared to 30 percent in mature markets in Europe and the U.S.," he said.