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We don’t think that the Indian markets are ready for a hospitality REIT: Mandeep S Lamba

In an exclusive interview, Mandeep S Lamba, president (South Asia), HVS Anarock speaks to Steena Joy about the hospitality investment scenario in the country, the impact of India’s first REIT and whether elections will affect the sector’s performance

What is the hospitality investment scenario for 2019-20 in India?

We anticipate hospitality transactions to be at an all time high in 2019 and expect it to reach circa US $ 800 million. With the Leela acquisition by Brookefield and the Keys acquisition by Lemon Tree Hotels, the first quarter has already set the pace.

India’s first Real Estate Investment Trust (REIT) has been launched. How will it impact the hospitality sector especially in a developing market like India?

We don’t think that the Indian markets are ready for a hospitality REIT as the industry’s performance does not as of now provide attractive returns to likely investors. However, with the successful listing of the Blackstone Embassy REIT which includes a hospitality asset component, being received well by the markets, we anticipate more REIT listings which will include hospitality assets in the blended real estate portfolios being listed in the REIT.

Goa is predicted to show the maximum growth in brand signings. Reasons for the same?

Goa has been India’s best performing market for a very long period of time and amongst the safest destinations for hospitality investors. Traditionally it has been a high entry barrier destination as getting clear title land and approvals to build in Goa has always been a herculean task. For this reason, Goa did not get the kind of influx of rooms supply which was triggered by the hospitality boom period in all key markets from 2005 to 2009 and which resulted in the pan India total rooms inventory more than doubling from 2006 to 2016. However, given the long gestation period for land acquisition and approvals, a number of projects which were initialised during the boom period are now becoming reality and hence the sudden growth in brand signings has taken place.

Your insights on the shift from international to the domestic traveller in the India market?

Traditionally, Indian hotels considered inbound travel to be of greater significance as the propensity to pay with International travellers was much higher than Domestic travellers. However after the Global Financial Crises in 2008 when the world economy slowed down and hotels started seeing major dip in inbound business, they started focussing on the domestic travel business which in size is over 100 times that of the International inbound travel. Also, with the growth in economy and globalisation in our urban cities, domestic travel grew at a very high rate along with the propensity to pay by the domestic traveller which has constantly improved over the years. Today, the domestic traveller has become a key segment for the industry and one that will only gain in significance over time.

The impact of elections on the industry?

Elections are always a dampener for the industry as travel numbers reduce by a large extent during this period. Corporates delay their activities since the government is not active during this period and no new policy decisions of any kind can be taken. Leisure travel also slows down since a lot of travellers do not take their vacations during election period on account of general security concerns. However, since elections are being held during peak off season for most destinations other than the leisure ones, the overall impact will not be as severe and we anticipate that the industry will still keep pace with its growth trajectory in 2019.

Lemon Tree Hotels and Chalet Hotels recently launched their IPOs. Do you see this as a future trend?

The hospitality industry has seen two successful IPOs in quick succession after a gap of several years. This has sent the right signals and the confidence to others looking to raise capital. We expect to see more IPOs in 2019 and 2020.

Homegrown brands like the Taj and Lemon Tree are reinventing their portfolios (Taj entering the homestay segment with Ama Trails and Lemon Tree eyeing Co Living platforms). Your comments on the same.

With the industry’s performance showing strong signs of revival and growth, increasing the reach and distribution through differentiated products is a likely outcome. IHCL has demonstrated their resolve to accelerate their growth and have reorganised their brand offerings across various segments including addition of new brands.

Lemon Tree is looking at a Co-Living venture which is part of the new age millennial business opportunities that are emerging globally in urban environments. While Co-Living mimics some hospitality elements, it is not a pure hospitality play and in that sense is outside the hospitality arena.

The Tier 2 and Tier 3 cities emerging as hotel growth hubs?

We are witnessing active growth in Tier 2 and Tier 3 cities which augurs well for the industry and reflects its journey to being a more mature industry. Out of the 201 new hotels signed in 2018, over 70 per cent were signed in Tier 2 (32 per cent) & Tier 3 (39 per cent) cities.

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