#27: The Suite Spot
Building standards hold back India’s hospitality industry
The burgeoning demand for hotels in tier-2 and tier-3 cities, catering to both leisure and business travellers, is a promising sign. However, the 2024 interim budget's allocation of INR 2,080.03 crore (20 billion) towards tourism infrastructure development might not yield the desired results. The culprit? Indian building regulations, which could potentially stifle the industry's growth.
Indian building regulations pose constraints on efficient land utilisation, a restriction that extends to hotel constructions. Indian regulations choke hotels into using less land and building smaller. These regulations reduce the potential economic activity a parcel of land can offer. This inefficient use of land translates into fewer rooms, lower employment and a difference between potential and realised earnings for the hospitality industry. The government itself loses out on revenue in the form of collectable goods and services tax. This blog shows how hotels in Noida and Gurgaon are far away from building infrastructure compared to other Asian countries.
Calculating lost land
The building regulations analysed in this blog are:
The Haryana Building Code of 2017 for hotels in Gurgaon, Haryana;
The New Okhla Industrial Development Area Building Regulations of 2010 for hotels in Noida, Uttar Pradesh;
The Singapore Master Plan of 2021 for hotels in Beach Road, Singapore.
Assume a hotel built on a 5,000 sqm plot, abutting a road of 12 m width. The blog explores four standards: ground coverage, floor area ratio, setback requirements and parking. The blog theorises a sample building using these four standards. This sample hotel building shows the floor space available to each building. This hotel is contextualised using variables unique to the hotel industry. The floor space is divided into a possible number of rooms. These rooms allow the calculation of the hotel's potential revenue, the number of jobs created, and the potential wages generated. The revenue is used to calculate the taxes payable to the government.
Impact of building standards
Floor Area Ratio (FAR) causes the most significant loss of floor space. Haryana allows a FAR of 1.75, and Noida allows a FAR of 3 for hotel buildings. Floor spaces of 8,750 and 15,000 sqm can be created, respectively. Hotels in Beach Road, Singapore can be built on a FAR of 9.9, which creates 49,500 sqm of floor space. Singapore allows over 3x of what is allowed in Noida. More floor space leads to a larger area available for conversion into hotel rooms. Such high-density development directly influences the number of jobs and the income generated by the plot.
Hotels are required to set aside floor space for parking spaces next. Parking standards for hotels depend on floor space (Gurgaon or Singapore) or the number of rooms (Noida). A hotel in Singapore requires one car parking space per ~260 sqm of floor area. Haryana's requirement of one space per 75 sqm of floor area is nearly 3.5 times Singapore's requirement. Hotels in Noida are required to allot one car space per hotel room. Such a requirement ends up in hotels potentially requiring more area for parking than the available floor space.
Ground coverage restricts the maximum amount of the plot which may be used to construct the hotel. Both Noida and Gurgaon allow 40% of the plot to be used. Singapore, on the other hand, allows 100% of the plot to be used, minus areas reserved for other standards. These ground coverage requirements translate to 3,000 sqm of the plot being lost in Noida and Gurgaon. The absence of sufficient open space leads to the Noida and Gurgaon hotels building underground parking facilities. Noida will construct six basement floors to provide the necessary parking spots.
Setback spaces require the building to be separated from the boundary wall. Both Noida and Singapore require these setbacks on all sides of a building. But in Gurgaon, hotels can be built closer to the edges without needing as much space. So, even though Gurgaon only loses about 400 square meters of land to these setback spaces, Noida and Singapore lose a lot more land—around 1,900 and 1,500 square meters respectively.
Contextualising findings
Singapore's building standards allow a 12-storey hotel, accommodating ~1,800 rooms on the 5,000 sqm plot. Adjusted for average occupancy, the Singapore hotel can earn up to INR 23.6 crores (236 million) a month. Noida and Gurgaon fall short by building 550 and 321 rooms respectively. Fewer rooms translate into potential monthly earnings of INR 7.1 crores (71 million) and 4.1 crores (41 million).
It's not just about revenue. High-density hotel development brings significant employment opportunities as well. The Singapore hotel, with its 2,180-person workforce, could generate around INR 3.6 crores (36 million) in wages. In comparison, the Gurgaon hotel, with its 385 employees, would have a monthly wage bill of INR 64 lakhs (6.4 million). The Noida hotel, with its 661 jobs, would contribute INR 1.1 crores (11 million) to the local economy in monthly wages.
The financial implications of high-density hotel development are significant. For instance, a Singapore hotel with a monthly earning of INR 23 crores would contribute INR 2.8 crores (28 million) each month towards goods and services taxes (GST ). In contrast, the Noida and Gurgaon hotels, with lower earnings, would proportionately pay less in tax. In the Gurgaon scenario, the government would lose ~ INR 2.3 crores (23 million), and INR 1.9 crores (19 million) in the Noida model.
These stark differences in building regulations between Singapore, Noida, and Gurgaon underscore implications for growth in the Indian hospitality sector. In comparison, Noida and Gurgaon fall behind due to restrictive building rules. Singapore thrives with higher densities and more flexible regulations. The disparity directly impacts potential revenue, job creation, and tax contributions. To unlock the maximum potential of the Indian hospitality sector, policymakers must consider revising regulations to foster high-density development, enabling hotels to maximise their space utility and economic contribution.
References
Government of Haryana. (2017). The Haryana Building Code.
Ministry of Tourism. (2018). Revised Guidelines for Approval of Hotels at Project Stage and Star Classification / Re-Classification of Operational Hotels. Government of India.
New Okhla Industrial Development Authority. (2010). New Okhla Industrial Development Area Building Regulation.
Urban Redevlopment Authority, Government of Singapore. (2019). Master Plan 2019.
The Federation of Hotel and Restaurant Associations of India. (2023). Hotel Industry Survey 2023.
Shubho Roy and Rohan Ross are researchers at Prosperiti. The authors thank Sargun Kaur and Anandhakrishnan S for their contribution.