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Hospitality Inc may not offer a great view in 2020

Developments such as the slashing of the goods and services tax (GST) rates for luxury hotels brought some cheer to the hospitality sector in 2019, but the ongoing economic headwinds and protests related to the Citizenship Amendment Act are dragging down growth in the near term.

, ET Bureau|
Last Updated: Dec 30, 2019, 08.05 AM IST
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In Sept, the GST Council slashed room rates for hotels with tariffs of Rs 7,500 and above to 18% from 28% besides rejigging the tax slabs.

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New Delhi: Developments such as the slashing of the goods and services tax (GST) rates for luxury hotels brought some cheer to the hospitality sector in 2019, but the ongoing economic headwinds and protests related to the Citizenship Amendment Act are dragging down growth in the near term. While the prediction at the beginning of the year was a 9.5% growth in revenue per available room for 2019, the year is likely to end at about 5% growth in revenue per available room for the industry, said Mandeep S Lamba, president, South Asia, at HVS Anarock. “2019 has been a mixed bag for the sector. It started on a positive note, with the first quarter of the year performing better than market expectations. However, the closure of Jet Airways, the impact of general elections in the country and the ongoing economic headwinds led to a temporary softening in demand during the year,” said Lamba. “The hardening economic headwinds and protests related to CAA and NRC are expected to dampen the spirits in the near term. In 2020, we anticipate the sector to perform at similar levels of growth as witnessed in 2019,” he added.

Industry experts are expecting the successful completion of Brookfield's acquisition of Leelaventure's hotels in 2019 to improve market sentiment and pave the way for more mergers and acquisitions activity in the country next year. In March, Leelaventure announced plans to sell its hotels in Delhi, Bengaluru, Udaipur and Chennai to Brookfield Asset Management for Rs 3,950 crore.

Jaideep Dang, managing director of JLL Hotels and Hospitality Group, said hotel sale transactions activity could also see greater momentum in 2020 on the back of challenging debt markets, wherein hoteliers may continue to find it tough to obtain debt to build new hotels and demand for land to build hotels will continue to remain soft as investors would focus on ready or near ready assets. “Business cities such as Mumbai, Hyderabad, Bangalore, Pune, Delhi and Gurgaon could witness growth in occupancies and perhaps a marginal increase in room rates. This is largely owing to the office lease and absorption trend.

According to a JLL Report, year 2019 has witnessed the highest office stock leasing and absorption of 46.5 million sqft of space across seven major business cities of India,” he said. Chains feel the introduction and slashing of the GST rates was a much needed and welcome step and should support the sector in the long run.

In September, the GST Council slashed room rates for hotels with tariffs of Rs 7,500 and above to 18% from 28% besides rejigging the tax slabs. “As the final cost to end user decreases, this has the potential to attract more overseas tourists coming to India,” said Nikhil Sharma, area director for Eurasia at Wyndham Hotels & Resorts, which added six new hotels in cities such as Kapurthala, Lucknow, Bangalore, Jaipur, and New Delhi under its Ramada by Wyndham brand this year.

“We are currently focused on expanding to the secondary and tertiary cities as well as the potential leisure destinations in India. Our concentration will be more in the mid-scale hospitality segment or the affordable, quality branded segment here,” Sharma said. Ankur Bhatia, executive director at Bird Group, which runs Roseate Hotels & Resorts, said the slowdown in key sectors did have an impact on the hospitality industry. “We could have done much better in terms of occupancy and average room rates in some months but the demand remained timid.”
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