NEW DELHI: Land authorities in Delhi’s tony suburb of Gurgaon sold a five-acre, five-star hotel plot for Rs 255.20 crore, put on the block for the second time in two months, after it previously rejected a lower bid.
The Haryana Urban Development Authority (HUDA) auctioned the land to a company it identified as “Millennium.” No further details were available.
When the same plot was up for sale at a previous auction by the Haryana urban development body on 15 December 2006, administrators rejected a bid of Rs225 crore even though it exceeded the reserve price of Rs161.87 crore by more than Rs60 crore.
Local HUDA administrator S.P. Gupta later said the land authority had announced at the auction that the agency would not settle for less than Rs250 crore, without saying why the reserve price was not a measure of the minimum price.
Auction terms and conditions allow for wide discretion by the land authority.
According to Binaifer Jehani, an analyst with CRISIL Research in Mumbai, land costs on an average, make up 25% to 30% of total capital costs for a five-star hotel built in India, depending on the city.
In this case, she said not only would the overall project cost escalate, the land cost could be about 50%, which means it would take longer for the developer to recoup his investment unless the hotel charges higher than existing room rates.
Average room rentals in the Gurgaon area are currently at Rs 8500.
“In the past developers used to not spend so much on land— in those terms it is too expensive,” Jehani said. She added, though, “if the property is really outstanding, then it could command those kinds of rates.”
The Delhi area faces a shortage of 30,000 rooms in advance of the 2010 Commonwealth Games according to the ministry of tourism.
However, the ministry and the hotel industry have had a difficult time convincing local land agencies to make quality land available in a timely manner at prices that are reasonable to sustain hotel projects in Delhi and its suburbs.