India Real Estate Monitor

The growing pressure on hotel and mall developers, faced with soaring construction costs that have risen by some 40%, is seeing Indian hoteliers and realtors importing built-up rooms, fittings, furniture and utility goods from China to save costs and time.
The trend of imports is catching on as costs have risen up to 50%, say industry executives and suppliers.
Indian hoteliers and realtors are importing built-up rooms and utility goods.
“A lot of vendors in China are creating entire (hotel) rooms,” says Akshay Kulkarni, director for South Asia at Cushman and Wakefield Hospitality, the hotels division of the real estate consultant by the same name. “Hotel operators can go there and choose the room fit-outs that they want for their hotels.”
This, hotel consultants say, will help budget hotels cut down the time taken to build a hotel by 8-10 months and costs by 40-50%. Typically, it takes between 12-18 months to build the hotel structure and up to another 10 months to fit it out. “It cuts out a lot of costs in terms of time saving,” says Kulkarni.
With supply in the domestic hospitality industry lagging demand, such measures to ready hotel rooms faster helps the business on the revenues side as well. Even with current expansions and new hotels being put up, India’s 150,000 hotel rooms predicted for 2010, up from 89,000 today, will fall short of demand then by some 100,000 rooms.
Hotels importing material and, in some cases, full rooms from China include mid-market hotel firm Sarovar Hotels Pvt. Ltd, which has around 35 new hotels coming up in the next three years, and business hotel chain Royal Orchid Hotels Ltd, which runs nine hotels in the country and plans to expand across pan-India by 2010.
The Sarovar’s orders range from furniture, sanitary plumbing, hair dryers, electronic safes, keys and locks to glass for windows, shower fittings, mattresses, tiles, soap dispensers and light fittings, for new properties in Chandigarh, Hyderabad and Bangalore. The preferred location in China for such Indian imports is the Guangdong province. Once the consignment is shipped to India, all that hoteliers do is assemble and fit these into the bare room structures.
“Guangdong has markets called a furniture city, or lights city spread across a 10km stretch on either side of the road,” Ajay K. Bakaya, executive director at Sarovar Hotels, said. “The only thing you need there is a local representative, or a local office that can manage everything for you once you have placed your order. We see huge cost savings of around 50%” with duties and a foreign earnings-linked scheme for capital goods imports, he added.
Sarovar works with Hong Kong-based logistics and sourcing company Blue Art Overseas Ltd, which is paid a commission of around 3% on the total consignment value shipped to India.
According to Ramesh Nahata, chief executive officer of the firm, for a normal factory in China that has orders for about 200-250 rooms, it would take two months for production, one month for transit and clearing, and another 10 days for assembling. In contrast, “if you were to give the contract to an Indian contractor, it will take him an average of four-six months to do the same,” he said.
One early trend among mall developers, according to an analyst tracking realty and construction firms, is that they are importing prefabricated walls from China in the last three-four months after steel prices shot up. The analyst, employed by a domestic brokerage, who did not want to be named because he is not authorized to speak to the media, said, “It helps developers cut costs by 15-20% and time by 30-50%.”
Such practices will also help developers and hotel chains finish projects on time because less manual labour is required for projects where prefabricated materials are used.
The Royal Orchid group is, however, more careful of what it gets from China and imports only artificial grass and hot plates from there. “It is not completely necessary to go to China for the entire hotel room, particularly not for our five-star rooms that require quality stuff. However, for our four-star rooms, we are looking at importing furniture, flooring and marble from China,” said Keshav Baljee, vice- president (corporate affairs) at Royal Orchid Hotels. Furniture imports save time by 10-15%, says Baljee, while imported flooring trims costs by around 20%.
Prices of construction raw materials have gone up in the last year, which has pushed up the construction cost for developers by as much as 40%. Between January and April, prices of pig iron went up by more than 70%, construction steel and wire rods by more than 36% and hot-rolled coils by more than 40%.