The country is presently facing a shortage of 1.1 lakh rooms. It is this massive gap between demand and supply that is enabling hotels to increase their average room rates by almost 18-22 per cent annually.
The Leela in Bangalore is the most expensive hotel in the country. Its yearly room rate average is $400. To put this exorbitant rate in perspective, one can get a room in the world's renowned Ritz-Carlton and Four Seasons for the same price.
As $400 is just the average, said an industry expert, Leela is able to charge even up to $550 on busy days - almost the same rate charged by the most luxurious hotel in the world - The Peninsula Hong Kong.
According to estimates provided by HVS International, a firm specialising in hotel valuation and consultancy, an investment of Rs 61,000 crore (Rs 610 billion) will be required to overcome room shortage in the country.
This figure has been arrived at by taking the average cost of developing a room, barring the cost of the land, as Rs 40 lakh.
The disturbing trend is that approximately 35-40 per cent of the cost of building a room is the land component, as against 20 per cent in mature international markets. While the land component cost in India is high, industry experts say it is viable.
As the major chunk of the cost in this sector is attributed to real estate, it is only a matter of time before real estate magnates decide to capitalise on the on-going inbound tourism boom to foray into hospitality.
For instance, DLF Ltd recently announced it was forging a joint venture with Hilton International to build 75 hotels and serviced apartments.
In tier two and three cities in north India, Ansal properties & Infrastructure will be rolling out 16 mixed mall formats, that will comprise serviced apartments and three- to four-star hotels.
Parsvnath Developers Ltd is looking at building 5-star hotels and resorts in Delhi, Mohali, Jodhpur, Mysore, Kochi and Shirdi by the end of 2007. The Delhi-based Vatika group has 3,000 acres of land in Sohna in its kitty, and will be using 33 acres for developing a Westin (a Starwood brand) with a Rs 100 crore (Rs 1 billion) investment.
Snippets
It's raining money
The Delhi Development Authority has never had it so good at hotel auctions. In March, real estate developers Emaar-MGF made the highest bid of Rs 200 crore (Rs 2 billion) for a 10,247 square metre plot at Jasola, which had a reserve price of Rs 64.54 crore (Rs 645.4 million) .
The company also successfully bid Rs 189 crore (Rs 1.89 billion) for another hotel plot at Jasola.
After this successful auction, DDA, was looking to making at least Rs 2,669.13 crore (Rs 26.69 billion) - as indicated from the reserve price from the auction of ten hotel sites in September, 2006.
Two-thirds of this would have been from four plots in Dwarka, where the total reserve price amounted Rs 1,812 crore (Rs 18.12 billion). But DDA had become too ambitious, and was able to sell only one of these 10 sites.
The agency reduced the reserve price and re-auctioned the sites in December.
The highlight of this auction was Parsvnath Developers picking up a 24,355 square metre plot meant for a hotel and commercial space (including provisions for a shopping mall and multiplex) in Dwarka for Rs 449.91 crore (Rs 4.49 billion), against the reserve price of Rs 444.55 crore (Rs 4.44 billion).
The Haryana Development Authority too has become ambitious.
In December, Parsvnath Developers and a small firm, Laxmi Developers, were engaged in a long bidding process for a five-star hotel site of 20,234 square metres. Parsvnath finally conceded the plot to Laxmi Developers after it bid Rs 225 crore (Rs 2.25 billion).
However, HUDA withdrew the plot, as it was expecting at least Rs 250 crore (Rs 2.5 billion) for it.
"We don't want to give these plots away at throwaway prices. Look what is happening at DDA's auctions," said one official.
Games in sight
An additional 11,000 rooms are required in time for the 2010 Commonwealth Games. The maximum hotel activity is presently in the National Capital Region that includes Delhi, Gurgaon and Noida.
As of now, 60 hotels including a Leela, Crowne Plaza, Marriot Courtyard and a Westin, have been signed up. According to HVS Intl, 72 per cent of the planned projects are under construction.
Hoteliers' ambition to build skyscrapers at the Commonwealth Games Village site in Delhi is also presently under threat. The head priest of Akshardham Temple, situated near the Commonwealth Games Village site, had written to Prime Minister Manmohan Singh that none of the proposed hotels should be higher than the temple, which measures 141.3 feet from the ground.
The DDA has identified 5.5 hectares (13.6 acres) at the site for hotels. Hoteliers are concerned because they wanted to build tall, multi-storey hotels, overlooking the Yamuna.
But if they kowtow to the priest's wish, the hotel towers will not be more than 10 storeys. It is also learnt that the DDA is planning to license these hotels to private players till 2040, after which a renewal option will be available for another 25 years.