Easing Foreign Investment Restrictions for Hotel Construction Ahead of 2010 Commonwealth Games
In preparation for the 2010 Commonwealth Games, the Indian government is contemplating relaxing foreign investment restrictions within the hotel and resort construction sector. This initiative aims to mitigate the anticipated shortage of hotel rooms. One proposal under consideration involves reducing the minimum development area requirement from 50,000 sq ft to 20,000 sq ft for hotels within mixed real estate projects. This adjustment would enable smaller investors to participate in the Indian hospitality sector.
Addressing the Room Deficit
With the Commonwealth Games just two years away, the capital city requires an additional 30,000 rooms to accommodate the expected 150,000 tourists. Other states also face the need for more hotel rooms to handle the influx of tourists anticipated in 2010. The Department of Industrial Policy and Promotion (DIPP) is presently focused on relaxing entry norms specifically for hotels. The Investment Commission, however, had previously recommended a broader relaxation of entry restrictions encompassing the entire real estate sector, including housing and shopping arcades.
Proposed Waivers and Current Market Conditions
The DIPP has already drafted a cabinet note proposing a waiver of two significant conditions: the three-year lock-in period on foreign investment and the minimum investment criteria of $5 million for joint ventures and $10 million for wholly-owned ventures. This waiver has also been requested for hotel-related real estate projects.
However, since the beginning of the current fiscal year, observers within the country have noted concern over what some analysts perceive as an asset bubble. R. Ahuja, an expert in realty verticals, observed, “With real estate prices heading southwards, tardy stock market, high interest rates especially for the real estate sector, the sector will continue to remain low for sometime”.