Realty players hop on to hospitality business

The booming realty market is blurring the lines between commercial, residential and hotel developers in Chennai. Close on the heels of major players such as DLF, Unitech, and Puravankara, city-based developers are also diversifying into the hospitality business.
While developers such as Appasamy, Ceebros and Harrisons have forayed into this category, others such as Arihant and Visranthi are expected to follow suit.
Industry observers attribute the heightened interest in the hospitality sector to a number of drivers like availability of capital,the synergy that real estate developers bring to hotel projects, IT parks having lost some of their sheen for these developers due to uncertainty in tax benefits and a huge demand for hotel rooms that stems from an increase in the number of business and leisure travelers plus tourists.
"The specialist construction knowledge of residential developers gives them a natural affinity for an asset class such as hotels, particularly in markets where the hotel offering is not very competitive. Residential developers, provided they brand appropriately, are able to find synergies with their accommodation expertise," said Mr Ramesh Nair, managing director-Chennai, Jones Lang LaSalle Meghraj.
Mr Nair added that another hospitality asset class gaining traction among residential developers is serviced apartments, as it does not require the 'high street presence' of hotels. For example, Star City spearheaded the concept of service apartments in Chennai, to address the needs of the expatriate population.
Appasamy Real Estates, which diversified into the hotel business more than a decade back, currently operates five hotels in the three star-four star category in Tamil Nadu and Karnataka. "Developers have local expertise in acquiring land, which gives them an advantage. However, the market has enough room for established hospitality players and the new builders coming in," said Mr Ravi Appasamy, managing director, Appasamy Real Estates.
Mr Appasamy added that though the IT parks continue to see a demand for occupancy, the pace of construction is ahead of the rate of absorption.
Also, the realty market in India is unorganized in terms of developers. So, any developer who finds a good opportunity will diversify. Earlier, diversification into IT parks was in flavour among small developers. With the IT sector facing trying times now, hospitality offers the next diversification opportunity.
Mr R Rajesh Babu, chief consultant- RECS Group, a real estate consultancy firm said that the recent budget proposal offering a five-year tax holiday for three or four star hotels established in districts that have UNESCO-declared 'World Heritage Sites' is also driving more activity in the hotel business.
According the ministry of tourism, Government of India, Tamil Nadu ranks third in the domestic tourism scenario, followed by Andhra Pradesh and Uttar Pradesh. On the foreign arrivals too, TN stands third. "When a city grows, the visitors also increase. Lot of sectors such as IT, hardware manufacturing, automobile and financial services have a strong presence here," Mr Rajesh Babu added.
While the hospitality industry in India is growing at a brisk pace there is still a huge gap between demand and supply resulting in increase in room rates. Going by the figures put out by the South India Hotels and Restaurant Association (SIHRA), the demand is projected at 1,00,000 quality rooms all across India but there are less than 40,000 rooms in supply.
"There is a huge shortage in the three and four star category. Also, in terms of IT parks, the non-SEZ parks are not in flavour. So, hospitality offers a good alternative," said Mr Kamal Lunawath, managing director- Arihant Foundation & Housing Limited.
Mr Lunawath added that Arihant plans to open 3 or 4 hotels in the next few years in the South, to tap the opportunity in this space. "We will handle the construction and leave the operational aspects to brands that already have expertise in the hospitality area," he said.

more