Up until 2007, most hoteliers, investors and developers were buoyant when it came to the growth prospects in the Hospitality industry. They had enough reason to be optimistic as every factor which would influence the industry, directly or indirectly, was on a growth trajectory.

The GDP was growing like never before and the whole world had its eyes on the Indian growth story. Plans of expansion filled the newspapers and press releases and investors were more keen than ever to get a fair share of the pie.

The recession, however, had plans of its own and devoured most of the pie. The global economic slowdown and its effect on the Indian economy has doused the fire of excitement of even the most optimistic developers and investors.

It has resulted in an extreme crunch for investment in the hospitality sector, coupled with the decrease in demand for rooms. This double whammy put to rest most of the ambitious plans of expansion across the country.

All players have been reviewing their plans of development, owing to the increasingly challenging macro economic situation at the moment. The total number of rooms estimated to be added is today nearly half of what was announced earlier. One-fourth of the plans announced so far have failed to materialize, while the rest are hanging on the edge of viability.

DLF, Parsvnath and other developers of similar cadre have scaled down or slowed down their plans of expansion. Parsvnath which had plans of adding at least 10,000 rooms has now stopped acquiring land for any further plans other than the twenty hotels for which they have already done the same.

There have been reports that DLF has been in talks with various Hotel companies to sell eight to nine of their land parcels demarcated for Hotel projects to raise funds. Unitech has sold its Gurgaon Hotel project to reduce its huge debt burden.

Developers are more focused on finishing the projects on hand than on making plans for the future. Divesting the investment heavy Hotel plans seems to be the best way out for the cash strapped, heavily indebted players to survive the present-day economic scenario.

Financial Projections Going Awry

The seeds were sown, the crops were nurtured through the tough inflationary times but when the time to harvest came, the floods of recession washed away the anticipated bounty. Cost and revenue assumptions made during the good times have thus gone for a toss.

When it comes to loan disbursements, real estate is presently the black sheep of the family. Private Banks from which loans were freely available earlier have dried up. Public sector banks which continue to lend, albeit cautiously, now require a higher collateral to lend the same amount.

Non-banking finance companies are either not lending at all or looking at returns in the post 20% range. Private Equity interest in the Hospitality sector has all but dried up. Due to the severe global liquidity crunch and flight of capital to ‘places of origin’, there is a diminishing interest for Private Equity players in foreign markets. This has added to the financial woes of the capital-thirsty developers. Read the rest of this entry »