A proposed hotel and convention centre in Dwarka, in West Delhi, was bought by India’s largest listed real estate firm, DLF Ltd, for Rs901.8 crore, which is about a measly 0.2% above the property’s reserve price—and sharply below what analysts expected—signalling that the real estate market may be cooling for commercial property.
Industry experts expected the 14-hectare (approximately 34.5 acres) property, which would house a convention centre as well as two hotels with a total of 1,100 rooms, would sell for twice the reserve price of Rs900 crore.
It wasn’t clear how many firms bid because the selling authority couldn’t be reached for comment.
The convention centre will include a 86,400 sq. m convention and exhibition complex, a 60,000 sq. m hotel complex and a 36,600 sq. m commercial complex.
The convention centre and one hotel of 300 rooms is expected to be commissioned within 32 months from the date of signing the lease deed and the remaining in 40 months.
Last month, DLF had raised money in India’s largest real estate initial public offering on the Bombay Stock Exchange.
The meetings, incentives, conventions and exhibitions market is the fastest growing segment in the tourism industry and New Delhi has about 30% of this segment in the country, according to previous estimates by the Delhi Development Authority (DDA).
But DDA’s latest commercial land auctions have netted the land owning authority considerably lower than earlier when its hotel plots sometimes sold at more than double the reserve price. In May this year, the Capital’s land owning authority drew bids for less than 30% of the hotel plots it offered, leading to accusations of cartelization from DDA.
Real estate prices in India, which have risen anywhere between 100% and 300% in three years, have started to flatten after the central bank warned against excessive lending to the sector and a series of interest rate hikes raised the cost of borrowings. That’s curbed speculative buying.
New Delhi and its adjoining areas are also ramping up on hotels rooms to meet demand for the Commonwealth Games in 2010, stoking concerns that supply may exceed demand.
“There has certainly been a rationalization of prices,” said Shubhendu Saha, senior manager, investment advisory, for real estate advisory firm DTZ. “The biggest demand (for hotel rooms) is in the budget to business segment. At the prices that land is being bought, it may be hard to maintain profitability at the tariffs for these segments,” he added.