Realty blues hit foreign hotel majors' India plans

International hotel chains like Hilton, Accor, Carlson and Starwood are concerned about the viability of their India plans. Many of these
hotel chains have tied up with real estate developers like DLF, Emaar MGF, Unitech and Parsvanath to set up five-star hotels. However, fund-starved developers, who are trying to raise money for their core activities like residential and commercial property projects, are understood to have put the hotel ventures on the back burner. A drop in occupancy and room rates, inflow of business travellers and tourists to India have also raised concerns on the viability of these projects, industry sources say.

“Out of a total of 1.14 lakh proposed room supply, only 58% or about 66,000 rooms, will actually be developed over the next few years. So, we feel many announced projects may not take off as planned,” said Manav Thadani, MD, HVS International, a hospitality consulting firm.

“Now, debt raising is a difficult process,” says Homi Aibara of Aibara Consultants. Lemon Tree Hotels CMD Petu Keswani said: “Only developer-led hotel projects will face a problem as their priorities are different.” However, when contacted by ET, real estate developers insisted that projects were on track.

According to the latest HVS report, cities like Bangalore, Chennai, Delhi-NCR, Hyderabad, Mumbai and Pune, where massive new room capacities are planned with real estate operators, are seeing trouble. In Bangalore not more than 60% of the new capacity is likely to come up. The same goes with Chennai, Delhi, Hyderabad, Mumbai and Pune.

However, cities like Agra, Hyderabad, Jaipur and Mumbai saw a negative growth in room supply in 2007-08 as compared to 2006-07.

The last few months have seen a demand-supply mismatch in tier II cities like Bangalore, Pune, Hyderabad and Chennai. Room rates too have fallen steeply in these markets, making it unviable for real estate developers to go ahead with the planned hotel projects. This is happening at a time when there is a severe shortage of branded hotel rooms.

Unitech MD Sanjay Chandra said: “We have management tie-up with the Marriott Group for three projects, and one of them will be commissioned in January. Other two projects are very much on.” Recent media reports had suggested that DLF’s hotel JV with Hilton had hit a rough patch. However, DLF clarified to the stock exchanges that “DLF’s JV with Hilton is on a firm footing and all plans for the development of hotels stand as originally envisaged”. However, industry sources said DLF has put the hotel project on the back burner for at least a year.

An Emaar-MGF spokesperson said there were no change in the hotel plans of the real estate firm and its tie-up with Accor. Says Uttam Dave, president and CEO, Interglobe Hotels and head of development, Accor Hotels India (Accor has tied up with Emaar MGF to launch Formule 1, a budget hotel): “Most of our projects are on track, and so far at least none of our projects have been either cancelled or put on hold, and this includes both managed and investment projects. There have been some delays in the actual development and commissioning of projects, and this has been on account of obtaining development approvals from municipal authorities and not due to real estate values.”