Newstrack

Commerce ministry restricts hotel room inventory in SEZs

Sanjeev Bhar - New Delhi

Despite escalating land costs and increasing room demand, the Ministry of Commerce and Industry has passed a room inventory clause restricting hotel construction with specific room numbers in Special economic zones (SEZs) if tax incentives are to be earned.

SEZs are viewed as a good choice for keeping hotel constructing costs to minimum and this move is considered inapt by the industry at large, especially when the government (at centre and state level) is keen on increasing room inventory to meet the demand-supply gap. Realty analysts believe that this move is a result of lack of thought process. Ankur Srivastava, managing director of London-based global real estate firm DTZ, points out, "The restriction of hotels rooms (100 for sector-specific SEZs and 250 for multi-product SEZs) doesn't make any sense considering that these zones will give rise to immense traffic."

Going by the rule book, hotels will only be allowed incentives if they come up in sector-specific SEZs and multi-product SEZs. Secondly, while the former will be allowed to have hotels with a total of only 100 rooms in addition to 7,500 houses, a 25-bed hospital and schools and other educational institutions spread over 25,000 square meters, multi-product SEZs will be allowed to have 250-room hotels apart from 25,000 houses and a 100-bed hospital.

Meanwhile, K B Kachru, executive VP (South Asia), Carlson Hotels Asia Pacific, feels that the restriction shouldn't bother hoteliers much. "The restriction is with regards to incentives that one receives for concessions on taxes, etc. One will not get these concessions if the hotel exceeds these specifications." Commerce special secretary G K Pillai had earlier clarified that developers will not get tax concessions for any construction beyond the specifications. Srivastava opines, "Every hotelier is seeking higher FSI to reduce the overall cost of operation. Hotels will face a crunch with this rule if incentives are to be earned and going beyond the specifications would call for tax implications. This would mean that SEZs will lose their value with hotel developers."