Developers may prune hotel projects, sell assets

The Indian hospitality sector could hit a roadblock soon with developers pruning the total number of hotel rooms planned by 40 per cent and putting their portfolio on sale due to the decreasing business traffic, rise in interest rates and economic slowdown.

Nearly 50,000 hotel rooms were planned in the country and that number may not be built by developers as business traffic has fallen 30 per cent in the last couple of months and lending rates for developers have increased significantly, said a senior executive of property consultancy Cushman & Wakefield. The central bank has increased lending rates by 125 basis points since April to tame inflation.

"Most of the projects were announced when occupancy rates were 90 per cent. Even some of them which had a usual room rental of Rs 3,000 a night, used to charge Rs 9,000. What they did not realise was that global meltdown and rise in business costs would lead to a correction. Companies are cutting travelling charges and going for teleconferences,'' said Sanjay Dutt, deputy managing director, Cushman & Wakefield.

''Even if you are planning to build a business hotel with 200 rooms with each room costing nearly Rs 40 lakh, at an interest rate of 14 per cent, you will need huge money to build the hotel. On top of that, occupancy levels have dipped to 60 per cent,'' Dutt said.

This situation has led most developers to reconsider and sell their portfolio, he said, adding that this could provide an opportunity for corporate hotel chains to buy these properties.

According to reports, global financial major Dawnay Day has put its hotel properties on sale to tide over its fund crunch.