Best time to invest into hotels
In the current scenario, with low demand and restricted travel, many hotel owners who already have over leveraged their credit facilities are either looking to dilute their equity or liquidate their assets.
The Indian Hotel industry is reeling under stress due to the current imposed lockdown which has extended for more than 120 days. The demand for the hotel industry is just coming from medical staff & patients, passengers traveling back in the Vande Bharat Mission, and airlines & shipping crew. With restricted demand, and continued restrictions on travel, the hotel industry is expected to continue witnessing demand from the current list of travelers only.
In the current scenario, with low demand and restricted travel, many hotel owners who already have over leveraged their credit facilities are either looking to dilute their equity or liquidate their assets. The moratorium offered by RBI on the principal amount is also coming to an end on 31st August 2020. This situation opened the door for many investors who were looking to enter the hotel’s industry but were not sure whether to build a new asset or invest into an operational asset.
Top reasons which indicates that this is the best time to buy a hotel:
Short term benefits:
With negligible demand in the industry currently, the valuations of many assets have dropped significantly. Current valuations are down by 20-30% on case to case basis. This poses a strong reason for investors who are looking to invest into hotels to come forward and start evaluating lucrative properties and plan their investments.
Existing hotel owners have highly leveraged their existing credit facilities making it unviable for these owners to continue to service their debts with negligible incomes due to restriction in demand both from corporate and leisure travelers.
Medium term benefits:
India has a population of 1.38 billion which accounts for 17.7% of the global population and has more than 65% of the population is less than 35 years of age. The Indian average age as of 2020 is around 20 years making it the youngest nation in the world.
As of 2018, there was an outbound travel of ~26.3 million people which was estimated to be around 30 million by 2020. However, due to the outbreak of COVID-19, these travelers will explore tourism opportunities within the country. The domestic tourism has started showing signs of revival in the form of weekend getaways and staycations.
Long term benefits:
International tourist arrivals (ITAs) clocked 17.42 million travelers in 2018 which accounts for 5% of total ITAs of the Asia & Pacific and 1.24% of the world’s total ITAs. ITAs witnessed ~33% growth between 2014-2018. During the same time foreign tourist arrivals (FTAs) clocked a growth of 38% taking a total to 10.56 million tourists by the end of 2018. FTAs in 2019 touched 10.89 million clocking a growth of 3.2%.
Indian hospitality industry’s revival is estimated to bounce back within four quarters and economic recovery will be the fastest in the world.
Travel and tourism industry contributes nearly 9% to the overall GDP in the country making it an important industry towards the revival of the Indian economy. As per Ministry of Tourism, as of 2018, India is the 7th most visited country by ITAs within the Asia & the Pacific region and 25th most visited country across the world. The rich and diverse tourism that India has to offer to its visitors makes it one of the most prominent countries when it comes to tourism. The country which is estimated to employ more than 42 million people directly and indirectly in the tourism industry is estimated to bounce back stronger than ever and is expected to breach the 2019 occupancy levels and ARR levels within the next 24 months.
Looking at the current scenario, HNI’s and family offices are showing a lot of interest in the hospitality segment with a prime focus on cities like Mumbai, Hyderabad, Bengaluru, Goa, and in established leisure destinations. Change in consumer patterns post the lockdown regarding work from home and e-retailing becoming more prominent as the imposed lockdown and restrictions have changed the daily way of life. However, there is no alternative to travel and vacations; consumer behavior towards the hotel industry is expected to increase further leading to HNI’s and family offices shifting focus towards the hospitality segment.