The Barriers to Building a New Hotel

The new Four Seasons in Mumbai illustrates the difficulties in building a new hotel project in a developing country, via the Financial Times.

[T]his week, after years of navigating red tape, the 202-room Four Seasons Mumbai became the first luxury hotel of its size to launch in the city’s south in about 20 years…

…Bureaucracy and a shortage of skilled workers make building hotels difficult – the opening of the Four Seasons was delayed by at least two years. The hotel needed 165 government permits – including a special licence for the vegetable weighing scale in the kitchen and one for each of the bathroom scales put in guest rooms. In the end, the hotel cost $100m (€64.5m, £51m), or about $500,000 per room, and prices – which start at $500 per night rising to more than $1,000 – reflect that.

Of course, bureaucracy raising the cost of new hotel construction limits the supply of rooms and raises their price. Reform would allow both more development and lower prices.

(Hat tip to Brad DeLong.)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I worked with a hotel in El Salvador & they had to pay a bribe of about $10K just to get their own TV’s out of a customs hold. Of course, it wasn’t listed on the balance sheet at a bribe – it was listed as an expedition fee (to expedite servics). It’s amazing some things hotels have to go through. I also once worked with a hotel in St. John’s Newfoundland that lost half of their FFE (Furniture, Fixtures, and Equipent) at the bottom of the Atlantic when their containers went overboard during a storm – not everything was lost, but they lost about 6 shipping containers during that storm. The worst part about it was that they had to open with their elevator only going up to the 3rd floor of the hotel as it was a conversion hotel with a couple of floors being added on & the elevator union was on strike for 2 years – so in Newfoundland – for 2 years, no one had any elevator work done unless they outsourced. Being a community (and pro-labor) hotel, they chose not to outsource the work.

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