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Real estate in India - Impact on
hospitality
Gurgaon
News: The real estate story in India is on the rise.
While more than 50 bigwig foreign funds have already
checked in, the first half of 2007 will see at least
25 more funds making an Indian entry. This will mean
that almost US$ 10 billion of foreign direct
investment will be injected into the sector. Hotel
developers have already announced thousands of square
metres of land.
Sanjay Bansal began by asking the panelists why real
estate is showing so much interest in hospitality. To
this, Shakti Singh replied, "We at DLF have different
models. We are developing assets and giving them to
professional management companies to run. We have
signed with Hilton for our hotel projects."
Other than the plan for DLF City at Gurgaon, it
recently inked a US$ 20 billion deal with the largest
privately held real estate developer in the world, Al
Nakheel of UAE, to build two townships in northern and
western India. The companies will initially invest US$
5 billion each in the next three years to develop
about 16,000 hectares, most probably in Gurgaon and
Maharashtra (between Pune and Mumbai). The townships,
scheduled to be completed in 2013 with more than 70
per cent of the land already acquired, will feature an
integrated combination of residential, retail and
hotel properties.
DLF has already applied to statutory regulators for
the second time to launch a public float that could
raise about US$ 2 billion for a 10.2 per cent stake.
Joint venture partners include Hilton Hotels, Feedback
Ventures and the UK-based infrastructure company Laing
O'Rourke. Sumit Guha explained that a rise in real
estate companies entering hotel sector is posing a
tough competition to hotel companies already operating
in the sector. "Lots of capital is coming but no one
knows where it will go," he added.
Meanwhile, Chender Baljee stated, "We are tying with
partners on a revenue-share basis. We're just testing
waters. The industry can adopt and grow different
models, franchise, partnership, etc." Talking about
the challenges in the market, Balaji Rao explained
that the market is exciting but challenging.
"Operators are running the market and there are no
fixed returns. Land has to be valued in terms of the
returns. Hotels have to enter different segments and
look into a different consumer base," he said.
Currently growing at 30 per cent per annum, the Indian
real estate market is estimated to be worth more than
US$15 billion with hospitality being the hot sector
into which an estimated US$ 2 billion is likely to be
pushed over the next three years, the bulk of it
through private-equity funds. Many funds are
allocating as much as 50 per cent of their planned
real estate investments into the sector, as
hospitality remains highly under-serviced, with a huge
demand-supply imbalance.
Bansal said, "Concerns about an asset-price have led
the RBI to raise the risk weightage on real estate
loans extended by banks, and mortgage rates have gone
from 7.5 per cent to about 9.5 per cent as a result.
That's still well below the 15 per cent rates that
most Indians were used to, but it's enough to raise
questions about whether the speculation of the past
year and a half, which has driven land prices up by 30
per cent to 100 per cent and real estate stocks up as
much as 2,000 per cent may be coming to an end."
Concluding the session, he added that in future,
interest rates are expected to come down. He said, "In
terms of market, tier II cities will see more
expansion. Valuation is a challenge and so are the
government regulations." |
