Woes for hotel developers: Rupee fall pushes project costs by up to 15%

The depreciation of rupee has added to the woes of hotel developers, pushing up project costs by up to 15% and increasing the possibility of delays at a time business has already been hit by a slowing economy.

Developers say imports make up 30-40% of the project cost, excluding the cost of land, and comprise items such as carpets, chandeliers, furniture, beds, bathroom fixtures, crockery, glassware, kitchen equipment and air conditioning plants. Architects and consultants are also paid in dollars, they say.

"For building a luxury hotel, reliance on imports is invariable. But the rupee's decline is making it difficult for us," says Ranjit Batra, president -hospitality at Panchshil Realty, which is building a Ritz Carlton hotel in Pune. Batra adds that apart from the direct impact on imports, there is an additional cascading effect on prices of domestic supplies that are dependant on imported parts.

A spokesman for Mumbai based K Raheja Corp, which is currently building a JW Marriot hotel at the airport in Mumbai, says the biggest problem is the fluctuating currency, which is threatening to increase the overall project cost.

The construction of the hotel is at a stage where various equipments need to be imported. "The impact on the project cost will be close to 10%," he says.

Rajiv Kaul, president of The Leela Palaces, Hotels and Resorts, which is building a new hotel in Jaipur, says the market is currently overheated. "We are in a wait-and-watch situation," says Kaul.

This, says Manav Thadani, chairman of HVS India, will mean even less supply of hotel rooms over the next few years. "Fewer people will want to venture into building a hotel now and some of those that are building hotels at the moment may be pushed to slow down their construction," says Thadani.

According to HVS, there are 84,650 branded hotel rooms that are proposed to be constructed across the country over the next three-four years. Of these, about 60% or 50,000 rooms are currently under active development.

Until the rupee started its free fall, the hotel industry saw imports as a way to get made-to measure high quality products at competitive rates from, say, China and save on time, but after a depreciation of over 20% in the currency it has been forced to look at domestic alternatives.

"Hotels need to look at any opportunity to localise as long as quality is all right. Competitive global pricing is no longer competitive," says Rajeev Menon, Marriott International's area vice-president for South Asia and Australia.

Some companies are negotiating prices with their foreign suppliers while others are finding and developing new local vendors. However, finding alternative vendors can take time and delay the projects, resulting in an escalation of costs. The silver lining, if any, is that investors with surplus funds can find good deals to buy hotel properties across the country.


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