The Hindu Business Line : `Spiralling land cost hampering hotels development'

THE huge potential for growth of tourism in the country and enabling legislation passed by the Government are among the factors that have supported investment flows into India and the South Asian region at large.

According to a panel of hoteliers and financial consultants, the potential for development of tourism in both India and China was drawing the interest of hotel developers and operators globally.

However, the high cost of land and the risk to return ratio in hotel development as compared to retail properties, were identified as challenges to the development of the hospitality sector in India. They were speaking at a seminar on hotel investments organised by HVS International here today.

According to Mr Uttam Dave, President and CEO of InterGlobe Hotels Pvt Ltd, if the price of land continued to appreciate at the current pace, it would soon become difficult for developers to set up viable hotel properties outside the metros. The spiralling cost of land was limiting the choice of locations available to developers.

While star properties in the metros could recover their investment by pegging room rates at a certain level, a similar property in the secondary cities would not be able to command a similar rate, thus hurting its profitability.

However, Mr Timothy J. Grady, Managing Director, Hong Kong, Morgan Stanley, said that while real estate prices were making people think twice, transactions happened where developers were able to team up with the right operating partners.

Mr Dave said the hospitality sector was often viewed as an industry. However, it should rightly be seen as an infrastructure facility that could spur the economy ahead by generating employment and revenues.

A study by HVS, the global consulting and services organisation focused on the hotel, restaurant, timeshare, gaming, and leisure industries, puts the shortfall of hotel rooms in the country at between 60,000 and 80,000 rooms. However, more conservative estimates put the shortfall at between 20,000-30,000 rooms over the next three years.

According to Mr Dave, the total investment required to develop the additional inventory of rooms would be in the region of Rs 6,000 crore, considering an average investment of Rs 30 lakh per room. The current capacity in the country was about a lakh of rooms.

"There is a lot of money chasing a few good opportunities," he said of the prevalent situation in the country.

The Government could extend a helping hand to the sector by providing early approvals, allowing mixed-use development of land and permitting higher FSIs.

He said if the situation on land availability worsened, the Government would have to step in to release plots for development.

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