High cost of debt and construction, delay in getting regulatory approvals, coupled with volatile economic environment, is delaying many hotel projects in the country. According to hospitality consultancy HVS India, of the 102,000 rooms under construction, only two-thirds will come up in the next five years.
While there are many projects in metros that have been delayed for more than 18 months, markets like Pune, Noida and Hyderabad, where the demand is softening, are likely to see maximum delays and even suspension of projects. ?Both debt and private equity money has become more expensive. And now, with slowdown looming large, there are chances of the projects getting delayed further,? says Kaushik Vardharajan, managing director, HVS India.
As per an HVS report, the proposed supply of new branded hotels in 2007-08 was 114,466 rooms, which declined to 94,115 rooms in 2008-09 due to the economic downturn. The decline continued through 2009-10 with the total proposed supply amounting to only 89,499 rooms. With the economy recovering, the proposed supply figure, which represents new hotels expected to open over the next five years had risen to 102,438 rooms in 2010-11. But now with delays in construction, seeking government approvals and difficulty in getting funds, once again the figure is bound to decline. ?Though the second half was not bad for the Indian hospitality industry, with the signs of slowdown in the economy, we will see de-railing of hotel projects,? says Kaustubh Pawaskar, hotel analyst at Sharekhan.
An industry source points out that there were many announcements that were made for Noida, but there is hardly any construction happening there. Pune is another example where hotels are suffering due to the present oversupply. The city witnessed the largest addition of new hotel supply in 2010-11, of about 2,019 hotel rooms because of which there was a sharp decline in the revenue per room. As a result, developers don?t want to put more money and many projects are stalled.
Another instance is the hospitality complex of the Delhi Aerocity (airport), which is facing delays mainly owing to regulatory approvals. Hotel heads agree that delays are getting rampant in the hotel sector.
?The biggest problem is the delays that we face due to approval hurdles. The cost of debt has gone up. We incur heavy losses because of the delays,? says Rahul Pandit, president and COO, Lemon Tree Hotels. Lemon Tree has a hotel coming up in the Aerocity. Its other projects in Chandigarh and Mumbai are also facing delays.
A Delhi-based real estate developer adds, ?As hotels have longer gestation periods, hospitality projects are the first to be put on the back burner, as compared to residential and commercial projects.? The recession of 2009 witnessed many developers such as Unitech and DLF shelving their projects.