The Hindu Business Line : Hotel sector feeling the slowdown heat

In a fix
The expected robust growth in business and leisure travel market has not happened
Most real estate companies are now stuck in liquidity crunch and want to move out of hotel projects

Shubhra Tandon

Mumbai, Nov. 18 The heat of global economic meltdown is being felt by upcoming hotel projects in India. Some of these ventures are likely to be delayed or put on hold.

Industry experts expect 20-30 per cent of the additional room capacity planned to be added by 2010 will be deferred by two to three years.

The projected room supply in the premium segment by 2010 was earlier estimated to be 25,000 to 30,000.

The pinch will be felt more by Indian real estate developers and foreign companies that had announced huge capacity additions in the country’s hospitality sector earlier this year. DLF, Unitech, Parsvnath Developers, EMAAR MGF are some of the realty players who have entered this segment.

“Indian real estate companies and foreign investors announced huge hospitality projects in India expecting a robust growth in business and leisure travel market. However, the foreign tourist arrival numbers have grown only by 1.5 to 2 per cent in the last two months, compared to 10 to 11 per cent growth witnessed in August 2008,” Mr Rashes Shah from ICICI Securities told Business Line.

Most of these companies (real estate) are now stuck in liquidity crunch and want to move out of hotel projects because they entail long gestation periods, he said.

Signs of worsening situation seem to have begun. While Unitech is looking for buyers for one of its hospitality ventures, DLF said earlier this month that it will exercise prudence in build out phase for the hotels business, which could be pushed back by 12-18 months from planned date owing to existing liquidity constraints.

In the current scenario, established industry players have an edge over their real estate counterparts. “Slowdown in new inventory in the market will help ward off competition for existing players,” said Mr Dilawar Nensey, Joint Managing Director of Royal Palms Group.

Agrees Mr Keshav Baljee, Vice President-Corporate Affairs of Bangalore based Royal Orchid, “The market for management contracts will soften and some of the hotel development by real estate players will be postponed or perhaps shelved too.”

However, both companies said they are not going slow on expansions and all projects will commence on time. Royal Orchid will add 900 rooms by 2010, said Mr Baljee.

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