The Indian Railways’ plan to free up land for 100 budget hotels may not fully materialize because there is no monitoring mechanism to ensure bidders stick to offering cheap room rates. Also, at current bid prices, building budget-class rooms may be a tall order.
The Indian Railway Catering and Tourism Corporation (IRCTC)—the railways’ dining, catering, and ticketing subsidiary that is leasing the space—said it has not yet developed a system to ensure room tariffs stay at budget levels, even though it’s in the terms that bidders agreed to.
The railways’ plan calls for between 25% and 50% of the rooms to be let out at Rs2,000 or less for the 30 sites that have already been awarded or are currently on the auction block.
While some tourist locations such as Darjeeling (on a 30-year lease) have gone for as little as Rs1.51 crore, making it affordable to run and build hotels with inexpensive rooms, there are others which look steep. For instance, a bid, in the southern city of Vijayawada, valued by the railways at Rs101.72 crore, was won by Essel Group and G.L. Hotels.
The bidders could not be reached for comment on whether they would lease even a portion of the hotels in the budget range.
Siddharth Thaker of HVS International, who advised a winning consortium of Zoom Developers and Royal Orchid Hotels Ltd, said prices paid for some plots may make budget hotels untenable on them. Instead, developers may be tempted to plan other projects on the sites.
The winning bidders may seek to renegotiate leases to build mixed-use complexes involving retail or commercial developments. They might do this by taking advantage of undeveloped space on the land. They could even attempt to secure the right to sub-license the land, which is currently not permitted, Thaker said.
Others in the hotel business said high bids would lead companies to outright flout the agreement with IRCTC and build hotels in categories above the 2-star segment.
Dr P.K. Goel, IRCTC managing director, said they expect winning bidders to adhere to the agreements for the course of the licence period.
However, he conceded that the railways had not yet developed a system to monitor the hoteliers. He acknowledged some of the hotels would focus many of their rooms on non-budget travellers, something permitted by the agreements.
Outside of the 100 lands it expects to auction, the Railways has awarded four existing Rail Yatri Niwas hotels for redevelopment: one to the Taj Group’s budget Ginger Hotel chain, one to Hotel Meghalaya, and two to Sujata Hotel of Patna.