Hotel rooms to get costlier even after lower GST

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Even when the central government has brought down the GST rate on hotels, the prices of hotel rooms will see upward mobility owing to various factors including increasing demand. The industry is likely “to register an overall healthy growth in revenue led by lower GST rates and consistently growing middle class along with increasing disposable income,” a CARE Rating report said on Thursday. The trend will be prominently visible in major markets which will witness a 3.5-4.5% jump in average room rates per annum, the report added. In fact, the room rates in FY19 were also on the rise thanks to higher leisure spending and limited supply additions during the year. The ARR achieved by major markets in FY19 brought it on par with the FY09 prices.

However, there are other factors as well that will drive the Indian hospitality sector’s growth. India is gaining ground as a prominent medical tourism destination and has been a lucrative source of earning. Coupled with this and a general trend of rising Meetings, Incentives, Conferences and Exhibitions (MICE) segment and “an increasing fondness among millennials to travel”, it is expected to bring more customers to the sector of both local and foreign origin.

To cater to a rising inflow of tourists, the room inventory also needs to expand. But, the expected future inventory is lower at around 50,170 rooms for the next 5 years, in 11 major Indian markets. “Therefore, with increasing domestic demand and lower room additions, we expect the major markets to sustain the average room rates (ARRs) going forward and grow at an average of 3.5-4.5% per annum,” the report said. Combined with increasing tourist inflows and subsequent higher occupancy rates, the hotel industry is set to witness an increase in room revenue at the rate of about 10-12% CAGR over the next 3 years.

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