Leading property developers are pulling out of hotel project

Leading property developers are pulling out of proposed deals with hospitality majors, including Royal Orchid Hotels and Ramada Worldwide, as cash flows in the real estate sector are slowing. Realtors are reconsidering plans to go into the hospitality sector.
Real estate developers with presence in National Capital Region (NCR), Bangalore, Chennai, Pune, among others, are opting out of four and five-star hotel projects. According to sources, a five-star hotel in Pune shelved its plans recently as its developer pulled out of the commitment.
“Developers are looking at realizing their money through any alternative resources and are thus in the exit mode,” Shivaram Malakala, executive director of Habitat Ventures, Bangalore says.
However, Wyndham Hotel Group International, which is promoting Royal Orchid Hotels and Ramada Worldwide, has denied any such development.
Says Sunil Mathur, director (international development), Indian Ocean Region, Wyndham Hotel Group, “All our projects are doing fine. They could be delayed by a month or two but none of them have been shelved.”
While Bangalore is said to have around ten such properties up for sale, NCR has over five properties. Last year, over twenty four-star hotels were slated for construction in Bangalore, of which six properties have begun operations.
According to a Mumbai-based hospitality consultant, the developers are facing cash crisis and have either put the property (unfinished buildings in some cases) on sale or have asked the hotel companies to find them partners who can invest in the venture.
Properties that were worth thirty crore rupees, for instance, are being sold at a discount of over Rs 25-50 lakh.
To be sure, players in the field believe that this slowdown could benefit the big players in the market and hoteliers will look to acquire land in areas where it was otherwise difficult for them to make purchases.
In 2007, over a dozen global chains, including the Hilton, Accor, Marriott International, Berggruen Hotels, Cabana Hotels, Premier Travel Inn and InterContinental Hotels group, announced plans to set up over three hundred fifty five-star, four-star and budget hotels and fifty villas in India.
Most of these chains joined hands with real estate developers. The plans would roughly translate into sixty five thousand additional hotel rooms a quantum leap, considering that over the past decade the total number of hotel rooms in all categories only grew by 10 % to about ninety two thousand rooms.
The decelerate in the real state sector can, however, soften the occupancy rate of hotels in the metros and leisure destinations, say analysts.
The possession rate in metros at this time is between 75-80 %, which could go down to just about 70 % in the subsequent few months as the off-season will begin. “If the off season is weaker than usual, there could be a down grading of hospitality stocks,” said an analyst.

One Comment

  1. Posted July 2, 2008 at 7:23 am | Permalink

    With growing inflation and interest rates leading to a slackening in property demand, 1% to 1.5% increase in interest rates could further impact the real estate sector.

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