Newstrack

Surge in foreign business tourists to India, little room for them

Sanjay Singh / Aakansha Sethi / Devesh Srivastava - New Delhi

An unpleasant surprise awaits foreign tourists flocking to India. Unless they have booked in advance, they are unlikely to find a room in a star-category hotel at short notice in any of the metros or even a tier-II city. In Delhi, occupancy rate this peak season is near 100 per cent, across the country it is around 80 per cent.

Business travel is spurring demand for hotel rooms. The Ministry of Tourism estimates that the country has around 1.2 million hotel rooms of which only seven per cent, or about 80,000, are star category. The open skies policy has spurred demand by increasing the number of commercial flights going into and out of India. The entry of low-cost airlines has provided a fillip to tourism.

A third catalyst is medical tourism. The number of foreigners coming to India to avail quality, inexpensive treatment is rising. Revenue from medical tourism is expected to rise from $333 million at present to $2 billion by 2012. The Commonwealth Games 2010, and India's growing popularity as a business conventions destination will also spur demand, says a recent FICCI-Ernst & Young report.

While demand has increased, supply hasn't kept pace. According to the Ministry of Tourism, the country has about 1.2 million hotel rooms of which only seven per cent, or about 80,000, are star category. A recent article in New York Times says China has 10 times as many hotel rooms and the US 40 times as many, as in India. The shortage has sent tariffs soaring. In Delhi the per night rental in Intercontinental, a luxury brand, is Rs 12,000-15,000; in Crowne Plaza, a meeting and convention brand, Rs 8,000-12,000; and in Holiday Inn, a four-star, Rs 6,000-9,000.

Michael G Herrmann, director (Operations), Intercontinental Hotels Group Asia Pacific, says, "Rentals have gone up 15-20 per cent in the past year, and will continue to rise for another two years till supply catches up." Rates have risen even in non-metros like Pune. A five-star room, available a year ago for Rs 6,000-7,000, can't be had today for even Rs 12,000-13,000.

While the hotel segment offers a lot of opportunities at present, rentals will tumble once all the supply currently on the drawing board comes into the market. Therefore, developers need to keep an eye on their costs. With land rates in all metros rising, there is a danger that in the present exuberant climate developers could develop very high-cost projects that will have a difficult time breaking even if rentals dip.