Cover Story

Racing against time

With just three years to go before we play host to the much-awaited Commonwealth Games, there is much to be achieved as far as infrastructure for accommodation is concerned. Sanjeev Bhar speaks with the trade to take stock and examine what the authorities can do to hasten development.

The political capital of the country has been buzzing with activity. After all, it's not every day that one gets to host one of the most prestigious international sporting events of our times. Apart from the prestige there is also the commercial gain that comes with hosting such events. As per a post analysis report published by KPMG on the economic impact of the 2006 Commonwealth Games in Melbourne, while approximately US$ 252.37 million were spent on the tourism sector itself, the GSP increase was quoted at US$ 1.6 billion. This is an indication of the financial impact the games will have on our country and Delhi-NCR will clearly be the biggest beneficiary.

But there is much work to be done before we can reap the benefits. According to Sonica Malhotra, director of Radisson MBD, with a forecast of 18 lakh international tourists and 35.8 lakh domestic tourists in 2010, Delhi would need an additional 10,412 star rooms for foreign tourists and about 2,366 star rooms for domestic tourists in the year.

Just skin deep?

While the development process in Delhi has been gradual but continuous, what must be analysed is whether these changes are merely cosmetic or will they be relevant even post-2010. A myopic view will only worsen matters.

Delhi's need for rooms is pushing realty prices to an all-time high. Currently, there is a shortage of around 30,000 rooms in Delhi and the NCR for the 2010 Commonwealth Games. To counter this, 27 new hotels and service apartments are slated to come up in NCR over the next four years, with nearly 20 hotels in Gurgaon alone, adding about 5,000 rooms.

Several international chains have entered into contracts in Gurgaon, Noida, etc either through franchise or management model for their India operations. Yet, for the entire country, there is an immediate requirement of approximately 1,00,000 new hotel rooms and only 75 per cent of that demand will be met by the projects that are currently underway.

But minister for tourism & culture, Ambika Soni, isn't perturbed. She says, "The number of rooms is being constantly reviewed and with more hotels becoming operational, the supply will move up to match the demand." She has even assured that the official site of the Commonwealth Games for Delhi will have detailed information about accommodations recognised by the government. Meanwhile, international sites giving information about the games depict India (Delhi, specifically) as a progressing phenomenon.

Governmental efforts

So what has the government been up to? It is pushing for development with an emphasis on public transport and taking keen interest in improving facilities with additional restaurants and parks of international standard at designated areas.

Malhotra says that the government is also considering granting infrastructure status to all budget hotels and convention centres set up in Delhi-NCR between now and 2010. This, she feels, will enable them to enjoy a 10-year tax holiday as in case of other infrastructure projects such as roads, ports and power. Incidentally, the finance ministry has not only assured a five-year tax holiday for two-, three- and four-star hotels but also conventions centres with seating capacity of minimum 3,000 people in and around Delhi.

But, the trade feels that there are some things missing. Ankur Srivastava, managing director of DTZ India - a global real estate advisory firm - says, "Recognising the shortfall of hotel rooms in the country, the government has announced sops to the sector in the previous budget. While finance and tax holidays have been looked at, all these will come to naught if the government does not facilitate availability of good real estate for hotels at appropriate rates. In fact, these tax benefits may even be counter-productive as it can lead to increased land valuations for hotel sites. Tax exemptions enhance free cash flows of the project leading to an increase in residual valuations of the project." Adding to this is ASSOCHAM secretary general, D S Rawat, who says, "Yes, there are certain areas the government needs to re-look, particularly taxation, so that necessary infrastructure can be created with minimum expenses."

Hoteliers look for sunshine

According to Srivastava, from a real estate perspective, the critical issue is clearly that of land shortage. "The government should take steps to ensure appropriate land parcels are released to the industry. An important area that needs to be urgently looked at is the availability of land stock for the sector," he says.

Taking this point forward is Sanjay Sethi, MD and CEO of Berggruen Hotels, who suggests, "The government should lease out land to hotel companies for new development without further delay. This could be done in a public-private partnership format too. We will be happy to invest in Delhi in a joint venture with the Delhi government." According to Rawat, the best solution would be to lease out whatever possible space is available to developers with minimum lease period of 40-50 years instead of 99 years. This will also help government realise better revenues.

This has prompted hoteliers and real estate companies to seek more land sites, which has raised the price in the region many times over. This is also putting the financial viability of hotels under the scanner. Hoteliers are also grabbing this opportunity to cut down on lead time for their projects as well. For example, Berggruen Hotels is looking to position its Key brand in places like Gurgaon, New Delhi, Old Delhi, Greater Noida and Faridabad. Sethi says, "While some of these areas are at a distance from the game venue, they will support room requirements for other travellers when visitors for the games fill rooms in hotels closer to the venue. But what is important is that hotels need to be viable post the games too."

Meanwhile, The InterContinental Hotels group is happy about its strong footing in Delhi-NCR. Michael Herrmann, its director (operations) for South West Asia, says, "We are geared up to handle the rush during the Commonwealth with two new properties Crowne Plaza Gurgaon and Crowne Plaza Mayur Vihar scheduled for 2008."

Is it bureaucracy?

Gaps in the development process have not gone unnoticed by the travel fraternity as well. Gour Kanjilal, executive director of Indian Association of Tour Operators (IATO), referring to hotel sites auctioned in Delhi-NCR, says, "The government has identified 65 sites out of which only 38 have been auctioned so far. Of that, 10 plots have received possession but work has not started yet. If this is the speed at which things are going to happen, it will be difficult to bridge the demand-supply gap."

Complaints about the lack of speed pour in from all directions. FHRAI president Rajesh Mishra says, "I don't know if there is any bureaucratic or legislative problem but the speed of development in Delhi-NCR is very slow. The focus should be more on budget category hotels." Other areas that the Delhi government needs to address are poor connectivity, high taxes, visa problems and unsanitary conditions in budget accommodations. Initiatives like speedier processing of visas, introduction of special trains for tourists, extending advance passenger information system (APIS) at airports, and introduction of visa-on-arrival will go a long way making Delhi more tourist-friendly.

Many feel that benefits (read tax sops) for infrastructure development to only one region (Delhi-NCR) is not fair. Hence, MoT has even asked the finance ministry to extend the five-year tax holiday for two-, three- and four-star hotels to at least 35 other cities in the country. Also, the initiative of Bread & Breakfast (B&B) scheme is going through a high. Soni informs, "There was some confusion in relation to implementation of domestic charges on water, power, etc. The scheme is of commercial benefit for registered members under B&B schemes. But the Cabinet is now reviewing this aspect. The good news is that the interest for the scheme is overwhelming and considering that each unit will offer us a maximum capacity of four pax, we can expect to counter room shortage in Delhi-NCR effectively." MoT has received over 150 Expressions of Interest (EoIs) for the scheme and the number is expected to increase with the craze reaching Uttar Pradesh in townships of Noida, Greater Noida and Ghaziabad.

Infrastructure check

As far as infrastructure goes, easy and convenient surface transport is among the most important facilities that the tourists must be provided with. Sunjay J Kapur, CEO of Sixt India is of the opinion that there is great opportunity for the car rental industry to provide total mobility solutions to travellers. "The state government should therefore look to provide car rental companies adequate infrastructure to grow and deliver the required service," he says. Arjun Nijhawan, director of Nijhawan group, is looking even beyond the Commonwealth Games. "The Commonwealth Games followed by the Cricket World Cup in 2011 will help the car rental segment grow tremendously," he says.

There is also a need to look at skilled manpower for and during the games - from paramedics, plumbers, electricians, to tourist guides and interpreters, safe and trained drivers, professional facilities managers, etc. Even restaurants will require quality service staff. Dhruv Lamba of Kwality group says, "The development of Quick Service Restaurant (QSR) business in Delhi-NCR has the greatest potential along the newly developed highway systems, with better road infrastructure. The tier II cities in north from Delhi also have immense potential with new concepts and better infrastructure like malls, multiplexes, etc constantly developing."

The benefits of development in Delhi-NCR are trickling down to its neighbours as well. Most five-star hotels are coming up in places of tourist interests or have big commercial enterprises like SEZs farther than the cities, as they feel many would also travel beyond Delhi-NCR especially in North India.

Rawat says, "Hospitality industry in India has been growing with marathon speed not only in NCR but also in other areas especially in the hills of Uttaranchal, Himachal, J&K and the north-eastern belt." Chandigarh is also witnessing growth. Vivek Atray, director of Chandigarh Tourism, says, "Development in Delhi-NCR certainly had some impact on the city's hospitality growth. Chandigarh at present is used as a stopover destination for onward journeys to other locations in the north." He added that since Chandigarh was a popular cricket destination, it needed more hotels in lieu of World Cup 2011.

Means to an end

Stuart Crighton, COO of online travel portal Cleartrip, suggests, "There is a dire need for providing incentives like raising Floor Area Ratio (FAR), providing land at subsidised rates, developing rooms in the mid and the budget segment, etc so as to facilitate growth. Measures like creation of land banks and freeing land supply, declaration of a conditional 10-year tax holiday for all tourism projects should be planned by the government."

Kanjilal too makes a few suggestions to the government. "Just getting permission for an extra floor on priority basis would enable Delhi to get around 2,000-3,000 rooms by 2010. According to ASSOCHAM, creation of chains of budget hotels by private sector has been extended to the ministry for which land should be leased out to developers of hotels." There were also speculations of most hotels under development being far away from the venue. Countering that point Malhotra says, "NCR is well-connected with four to eight lane highways. The metro is also making its route across the city. The government is also making efforts for more buses, taxi services, etc.”

The speculation and debate on whether the region is prepared to host the 2010 grand event will not subside until the games are here. The sector, meanwhile, is still awaiting a shot in the arm by the government and the private sector. What remains to be seen is whether the region would grow beyond the '2010 phenomenon' as well?