Hospitality

Hospitality sector facing high cost debt

DELHI: High-priced debt and tougher lending norms of banks under stress due to rising non-performing assets have slowed down hotel development activity in India and hotels are holding back supply proposals compared to a few years ago, reports The Economic Times.

“For the last 12 months, the hotel industry has been in a flat trajectory in terms of occupancy, average room rates and profitability. The development activity has slowed considerably as access to debt funding is a big issue,” said Siddharth Thaker, managing partner at Prognosis Global Consulting, a hotel consulting firm.

Earlier, the natural diversification for real estate companies was to get into hospitality industry but now it is not that easy, he said.

“A lot of hotels being planned are stuck in the development pipeline. The cost of debt is averaging at 13/13.5%. It’s not easy for people to get funding for hotels,” Thaker added.

Nirupa Shankar, director, hospitality, for Brigade Enterprises said the hotel industry has seen tough times in the last two years from a development perspective where companies have scaled down development or delayed projects.

“As a company, we want to focus on development of mid-market business hotels of around 120 to 170 keys as the breakeven is faster. We do not want to do luxury hotels as a strategy,” she said. Brigade Enterprises also wants to develop hotels as mixed used projects primarily.

Prestige Group, another Bengaluru-based builder that will soon open Hilton’s Conrad hotel, said investing in hotels will be more of a strategic decision.

“The company will not go and invest heavily in the hotel development business,” said an official from the company. The company currently has about 1,000 keys across three hotels under development. “There have been oversupply issues depending on the micro market that one operates across. Additionally, the gestation period is very high,” he added.

However, Kaushik Vardharajan, vice-president of development, Hilton — India, said the group has been expanding rapidly in India, through a multibrand, multiple partner and high growth strategy and has in the last few years opened several hotels and built a strong development pipeline.

Mandeep Lamba, managing director, hotels and hospitality group at JLL India said sentiments have dampened as the real estate sector witnesses one of its most sluggish periods, with most developers facing severe cash flow shortages and a long bear run that hotels across the country underwent, leading to non-performing assets investment.

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