Newstrack

Hotel plots sold through tenders could lead to further price rise

Sanjeev Bhar - New Delhi

The shift by land bank owners from auctioning to selling the plots through tenders seems to have done little to check price escalation. A noted hospitality professional requesting anonymity said, "The plots were auctioned to increase land prices which created an artificial demand at a price that never existed."

For example, Delhi Development Authority (DDA) advertised the auction of a hotel plot of 13,603 square metres in Sector 10, Dwarka City Centre at a reserve price of Rs 188.83 crore in May 2007. Two months later, it was again floated under tender with specifications intact.

The professional argued, "Tendering will raise the price index. It is hard to believe that DDA would award the tender to a party that is not the highest bidder. Auctioning or selling through tenders is just a gimmick to raise price of land not worth for hospitality."

However, DDA did slash the reserve price for another hotel plot in Paschim Vihar District Centre by Rs 54.08 crore while shifting from auction to tender. Nonetheless, the government is expected to introduce a central sector plan scheme for creation of land banks for hotels, in light of immense room shortage, which will be transferred to India Tourism Development Corporation (ITDC) on long-term lease. The hotels will come to fore under the build, own, operate & transfer (BOOT) plan. The project will be operated under public-private participation.

According to Archana Capoor, CMD of TFCI, the way land sites are being sold off by organisations is not right. "There should be a combination of long-term lease and auction/tender. The tender method for sale of hotel land sites is also questionable. Like auctioning, it has a reserve price too and the highest quoted tender wins the project. So where is the difference?" she questions.

The feasibility of the projects may be questioned because of the prices at which land sites are being sold presently. If things are governed by the current tariff regime in the industry, projects cannot be sustainable in the long term. Last year, National Buildings Construction Corporation (NBCC) auctioned a three-acre plot at a prime location in Central-South Delhi, which grabbed headlines as Hotel Leelaventure won the auction by paying an exorbitant price of Rs 611 crore.

While hotels with big pockets can shell out big amounts for a land in prime location, tenders could lead to a bigger price war due to the suspense involved. Last year, the DDA had managed to earn as much as Rs 1.25 lakh per square metres and plots were sold for over three times the reserve price. Now, tenders for selling hotel plots will bring about more ambiguity, speculations and the selection process of the winning bid will face higher scrutiny.