In an auction for nine hotel plots that lasted about an hour, the Delhi Development Authority failed to receive a single bid as hotel developers stayed away, citing unattractive locations and in some cases high reserve prices. The auction concluded a two-day attempt by the land agency to sell 19 plots, of which only three were sold.
According to a poll of hoteliers, developers and analysts by Mint, DDA’s poor choice of location emerged as the single biggest factor keeping buyers away. This is in spite of some lots being priced as low as Rs14.15 crore for about a third of an acre, or about Rs33 crore per acre. Most of the plots were located on the city’s outskirts in areas like Rohini, Dwarka and Mayur Vihar. In less peripheral areas of Delhi, although not prime ones, land has previously been sold for twice that price an acre.
“Those places which they were auctioning were not right for a hotel but I thought there were a lot of crazy guys in the market” who would be willing to pay outsized prices, said a senior official with the Eros Group, who declined to be named saying said he didn’t want to appear in media reports.
DDA’s failure to sell the plots raises questions about the government’s ability to meet its target of 30,000 additional rooms in the Delhi area by the 2010 Commonwealth Games. The tourism ministry is counting on DDA and other land-owning agencies in the area to make land available for at least 26,780 hotel rooms by then.
The auction failed despite a five-year tax break for new two-, three- and four-star hotels and convention centres in the Delhi area being included in the Union budget.
A DDA official who did not want to be named said the agency is studying the trend of unsold hotel plots to see what factors are involved and will consider reducing reserve prices in future.
Beyond the consensus on location, outsized reserve prices, a potentially softening market for real estate and a drop in the number of land speculators investing in hotel plots in the Delhi area were cited as reasons for developers to keep away. Rising interest rates and tighter lending for the sector could also have played a part.
DDA has previously received high prices for hotel plots such as the Rs388 crore that Emaar-MGF Land Pvt. Ltd paid for an approximately five-acre plot in south Delhi, or Rs77.6 crore per acre.
The problems may go beyond hotel plots to other real-estate sectors. Amandeep Singh, proprietor of Goodwill and Company Pvt. Ltd, a small residential developer, said he has attended several DDA auctions. As recently as a few months ago, his company bought a small plot in Dwarka for about Rs9 crore, because he felt it was still “a good market” for real estate. Now, he said the market has turned sour.
For hoteliers, though, it’s “the same issues—the locations,” said Vimal Singh, managing director of the South Asia joint venture of Golden Tulip Hospitality Group, which is introducing its mid-range and luxury brands in India. Singh added that for “some of the better locations, the reserve price was way too high.”
Some properties have been sold in recent months in Delhi at high prices, but in locations that are more central. For example, Hotel Leelaventure Ltd bid Rs611 crore for a plot of about three acres, or about Rs203.67 crore per acre, in south Delhi.
The DDA official also raised the possibility of a cartel by developers to keep prices down, though builders such as Ansal Properties and Infrastructure Ltd and Eros Group denied it.
(Rahul Chandran contributed to this story.)