Kolkata: Real estate developers Emaar MGF Land Ltd and DLF Ltd have dumped plans to build luxury hotels in Kolkata, four years after buying land at steep prices.
In April 2006, Emaar MGF won in an auction a 99-year lease for a 5.6-acre plot on Eastern Metropolitan Bypass, an arterial road connecting the city to the airport, for around Rs190 crore.
It was then a record price paid for a property in Kolkata.
Emaar MGF had said it would build on this plot leased out to it by the Kolkata Metropolitan Development Authority (KMDA), a civic body, two luxury hotels under the JW Marriott and Holiday Inn brands.
Three months later, DLF secured on lease at an auction on the same road a 5.5-acre plot from the Kolkata Municipal Corporation (KMC) for Rs155 crore. It said it would build in four years a 16-storey hotel under the Hilton brand.
In 2007-08, Emaar MGF got a lease for an undisclosed amount another property in the heart of Kolkata from the Royal Calcutta Turf Club. It had proposed to build there a 227-room hotel under the Park Hyatt brand.
Emaar MGF said in a letter sent to KMDA recently that it wanted to shelve its plans to build luxury hotels and instead build a business hotel and service apartments there.
“The prevailing average room rent (ARR) for the luxury segment is Rs6,000-7,000 (a night) with occupancy level at 50-55%, whereas our project will need ARR of Rs10,000-11,000 and occupancy of 65-75% to be cash neutral,” Emaar MGF said in its letter to KMDA, which Mint has reviewed.
DLF, too, has told KMC recently it does not want to build a luxury hotel on the plot that it has secured from it on lease, and that it now wishes to build an upscale condominium, according to KMC commissioner Arnab Ray.
“Our legal cell is examining DLF’s revised proposal,” he added.
The problems cited by Emaar MGF aren’t specific to Kolkata alone, according to Sanjay Dutt, chief executive officer (business) at Jones Lang LaSalle Meghraj, a property consultant.
“Emaar MGF appears to be reviewing its strategy for its hotel business to ensure adequate return on investment,” he said. “Last year, many developers shelved plans to build hotels and switched to residential projects, as these yield better cash flow in the short term.”
“The company continues to evaluate its development plans and may implement changes in the future based on market demands,” an Emaar MGF spokesperson said.
DLF declined to comment.
If a hotel project costs upwards of Rs1 crore a room, the developer would typically seek ARR of around Rs10,000, said Akshay Kulkarni, executive director (hospitality services) at Cushman and Wakefield, another real estate consultancy.
Both Dutt and Kulkarni said they did not expect ARR for luxury hotels in Kolkata to rise to Emaar MGF’s expectations in the foreseeable future.