With so many brands making headway into the budget segment, budget hotels, it seems, is the next big thing in the Indian hospitality sector. It is, therefore, no surprise that land prices have been increasing rapidly across the country. Amidst all this, the big question that this trend throws up is � is the Rs 1,000-2,000 pricing of budget hotels sustainable?

Tata has its budget brand Ginger Hotels. The others in this segment include Sarovar's Hometel, Choice Hotels, Red Fox and the recently announced Formule 1 hotels besides numerous unbranded budget hotels dotting all cities.

Ginger hotels has announced a pricing of Rs 999 for its rooms across the country. They already have six hotels running and plan to take this number up to 30 operational hotels by March 2008. Prabhat Pani, CEO, Ginger Hotels, says the new hotels are being planned near commercial and business areas of cities and towns.

According to industry observers, Ginger's Rs 999 pricing strategy will not hold for long and they will have to charge more. But it's company policy and according to Pani, "Ginger provides a wonderful package at a very attractive price, irrespective of the size of the city and the season."

For Vilas Pawar, CEO, Choice Hotels, Rs 2,000 is a viable rate for a budget property, depending on where the hotel is. Delhi, Mumbai though can command Rs 3,500 upwards even for two-star properties. "Land prices in these cities don't allow anything lower," he says.

According to Ajay Bakaya, executive director, Sarovar Hotels, pricing depends on two factors � demand-supply and cost of land. For them, a good price range will be anything between Rs 1,500-4,000 depending on the location. The Sarovar Hometel property at Whitefield in Bangalore has an average room recovery of Rs 3,200.

"The same property in Gurgaon can easily have an ARR of Rs 4,000," he explains. Alternately, a Hometel in Bhopal or Indore would charge Rs 1,600-1,800. In the same location � Whitefield � Ginger is doing a much lower ARR compared to the Hometel. An industry observer feels that looking at the Bangalore market, Ginger can charge much more for the product they are offering. "They are eroding their profits," he says.

Bakaya also feels that economies of scale come in only if a chain builds several hotels. Conversely, Akshay Kulkarni, national director, hospitality, Knight Frank (a real estate consultancy), says that even with several hotels in one chain, each hotel has to make sense individually.

For him, a 1,000-room budget hotel selling at Rs 1,800-2,000, utilising the maximum FSI available is the most feasible option.

Patu Keswani, who started planning Red Fox hotels (two-and-a-half star) about two-and-a-half years back, says initially they were looking at a price range of Rs 800-1,500 but the way land prices have gone up in this period, they have had to revise their range to Rs 1,200-2,500.

"Our pricing will be linked to the total project cost and will be reflective of market conditions," he explains.