FDI in hotels on track
The hotel and tourism sector attracted FDI worth 4,041 crore during April 2011- January 2012. This reflects an increase in FDIs in the hospitality industry, especially over the last two years.
Foreign
direct investment (FDI) inflow in the hotel and tourism sector has witnessed a considerable spurt from April 2011 to January 2012.The hotel and tourism sector attracted ` 4,041 crore FDI during this period.
According to a report received from the Department of Industrial Policy & Promotion, the Centre released FDI equity flows from April 2008 to January 2012 in the hotel and tourism sector. In the financial year 2010-11, the sector attracted ` 1,405.15 crore worth FDI while in the financial year 2009-10, the sector received
` 3,566.32 crore.
Feels Akshay Kulkarni, Regional Director – Hospitality, South & Southeast Asia, Cushman & Wakefield, “We have seen an increase in FDIs in the hospitality industry, especially over the last two years. However, it is true that the amount of funds flowing into this sector have still not been up to the mark. Going forward, with more and more developed properties getting transacted, there will be more institutional or institutional type buyers in the market. This will take away some of the anxiety from both operations and development. We already have a number of examples – Duet, Samhi, Xander, APG in LemonTree, etc all of whom have taken the development
risk and also the ready asset route to fund the growth of hotel development.”
A large part of the issue that most foreign investors in this sector face is certainty of a project hitting the market at the determined time, cost of real estate – entry barriers, permissions and approvals and the high cost of funding projects as well, laments Kulkarni.
According to Pankaj Arora, Managing Director, Protiviti Consulting, the future of FDI in hospitality industry in India looks bright, especially after the opening up of 100 per cent FDI in the country. However, foreign players do question themselves before investing in India on whether they should really go through bureaucratic hurdles or invest in some other country that is more business-friendly and easy to work with instead. “Thus, permit and license hassles, bureaucratic delays and redtapism continue to plague this industry. The government must ease such impediments in order to invite more foreign participation,” he points out. Also, another reason why FDI is still picking up is due to the fact that many international hotel brands enter India not with ownership model, which is assetheavy but with management model, which is asset-light. The reasons would vary for each hotel chain. “Some would want to explore the Indian market before they invest heavily here, while others would want to consolidate management bandwidth before owning and investing hotels in the country,” he adds.
Opines Garish Oberoi, President, HRANI and VP, FHRAI, “FDI in hotels is still on track. Almost everyday, you hear of a new hotel chain entering India. The reason is despite all the bottlenecks, the investors know that there is tremendous potential in the country.”
One of the instances of the international chains
investing in India is the Intercontinental Hotels Group (IHG). In April last year, IHG signed a 20-year management contract with Duet India Hotels to launch 19 Holiday Inn Express hotels in India by 2016. Duet India Hotels, the hotel investment arm of global asset manager Duet Group, has set aside around $145
(` million 650 crore) for the project. IHG, which will run the hotels and formulate expansion plans, will put in $30 million for a 24 per cent stake in the venture. The partnership with Duet also marks the group’s first-ever equity investment in India. Remarks Chris
Moloney, Chief Operating Officer, South West Asia, IHG, “The venture with Duet India Hotels marks a significant milestone for IHG. Through this venture, we have established a strategic relationship with Duet who knows the market well, thereby opening up a huge opportunity for us to develop the Holiday Inn Express brand across India. With the 19 new signings for Holiday Inn Express hotels, we continue to add momentum to our current India development pipeline.” IHG is strongly positioned to build a significant India footprint with a growing presence in India’s key business and leisure hubs. Overall, we are on track to have a 150-hotel presence by 2020, he adds.