South Indian developers moving into hospitality

Following the trend set by the Northern counterparts a number of South Indian developers are building hotels in Karnataka, Tamil Nadu and Kerala.

Tour operators who have long be­moaned the inadequacy of classified hotel rooms, now see salvation coming their way from an unexpected quarter— the realty sector. A hint that the apartment boom may have touched a plateau has led to realty players in the south seeking opportunities in the hospitality sector, to the delight of the hotel and tourism operators.

A shortage of hotel rooms has always plagued the southern tourism sector. There will be a demand for nearly 5,000 hotel rooms in and around Kochi when the Volvo Ocean Race, the veritable Formula One of ocean racing, touches the port city in December.

The spurt in tourism, coupled with the paucity of hotel rooms, has prompted developers who have traditionally built structures for residential, commercial or retail clients, to look at developing property for the hospitality sector.

Following on the lines of major players such as DLF, Unitech, and Hiranandani, south-based developers are also tapping opportunities in the hospitality business. While Puravankara, Appasamy and Ceebros are among early movers in this category, Arihant and Visranthi, among others, are expected to follow suit. Industry observers cite different reasons for developers’ heightened interest in the hospitality sector.

Some drivers, they say, are the availability of capital, the synergy that real estate developers bring to hotel projects, ebbing interest in building IT parks and a significant demand for hotel rooms.

R Rajesh Babu, chief consultant of the RECS Group, a real estate consultancy firm, says the recent budget proposal  of a five-year tax holiday for three and four-star hotels at Unesco-declared world heritage sites is also driving interest in the hotel sector.

“The specialised construction knowledge of residential property 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”, says Jones Lang LaSalle Meghraj’s Chennai MD, Ramesh Nair.Mr Nair says another hospitality asset class gaining traction among residential developers is serviced apartments, as it does not require the “high street presence” that hotels need.

Appasamy Real Estates, which diversified into the hotel sector over a decade ago, now operates five hotels in the three and four-star categories in Tamil Nadu and Karnataka.

As company MD Ravi Appasamy says, “Developers have local expertise in acquiring land, which gives them an advantage”. He says the market has enough room for established hospitality players and that new players are coming in. Mr Appasamy says diversification into IT parks was popular among small developers in the past, but with the IT sector not seeing the best of times at the moment, hospitality offers the next diversification opportunity for developers.

There is also a shortage in hotel rooms in the three and four-star categories, making hospitality an attractive proposition for realtors, says Kamal Lunawath, MD of Arihant Foundation & Housing.

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