Hotel projects of over Rs 50 crore should get infra status, says JB Singh, President and CEO, InterGlobe Hotels

Hotel Representative Image (Source Unsplash)

For the upcoming Budget 2021, JB Singh, President and CEO, InterGlobe Hotels says:

For the hospitality sector where breakeven periods are already stretched and capital availability has been a challenge, the current crisis has dealt a body blow. However, the third quarter of FY21 has seen some green shoots with occupancies building up to over 80 percent of pre-COVID levels on the back of pent-up leisure demand. The overall revenue is still only at 30-35 percent of what it was the same time last year. A lot, therefore, needs to be done. The sector remains a major contributor to the GDP and employment for the large workforce of India.

We have two major expectations from the upcoming union budget. The first one being the grant of infrastructure status to all hospitality projects with an investment of over Rs 50 crore, which would allow the availability of long term low-rated capital for projects and will help add quality rooms to an undersupplied market. Currently, only hotel projects with investments of over Rs 200 crore are eligible for this status, limiting their applicability to luxury hotel projects, and is biased against the economy and mid-market hotels as they rarely cost over Rs 200 crore. But in hotel supply, the mid-market segment has the highest inventory and the widest market reach in the country.

The second expectation is around the creation of an Alternate Investment Fund along the lines of a real estate distress fund to help complete hospitality projects that are stuck for the lack of capital. In these funds, the money can be raised from non-banking entities and they could focus on compliant and legally conforming companies to help them come out of a sticky situation.

Additionally, hotel developers face a challenge of input credit on GST not being available for a bulk of the project cost as it is classified as immovable in nature. Only a part of GST spent on construction cost can be recovered after the hotel becomes operational. This has had a direct impact of an increase in construction as much as 8-10 percent, further reducing the returns from hotel projects. This needs to be reviewed and corrected.