New Delhi: City-based realtors Ansal Properties and Infrastructure Ltd and Raheja Developers Ltd, faced with a slowdown in housing demand, are entering the development of so-called special economic zones (SEZs) in north, joining dozens of other Indian companies seeking to cash in on demand for industrial properties at such areas, earmarked by the government to encourage business in the country.
Ansal plans to invest Rs3,600 crore in developing four SEZs and two industrial parks designed for use by information technology, or IT, companies in Greater Noida, Gurgaon, Mumbai and Lucknow, while Raheja said it will invest Rs4,500 crore in developing an engineering SEZ in Gurgaon.
Real estate companies across the country are diversifying into other related businesses such as hotels, retail properties and SEZs to beat the slowdown in housing sales—by almost 30-40% in rich markets of north such as Gurgaon and Noida. Profits of developers are also getting squeezed because of an increase in cost of finance and construction raw materials.
Raheja Developers chairman Navin Raheja at a press conference in New Delhi on Wednesday. The company is in talks with engineering firms to take space in its Gurgaon SEZ. Photograph: Ramesh Pathania / Mint
SEZ development, in comparison, presents a lucrative business opportunity for real estate companies given the 10-year tax holiday available to developers on income from such zones.
Three of Ansal’s SEZs have received government approval, while the regulatory go-ahead is pending for the one in Lucknow.
Land for all the SEZs have been acquired by the company, Rakesh Jain, Ansal’s executive director, marketing, said. Construction on the Greater Noida SEZ has started and the zones and IT parks are expected to be completed in the five-seven years.
Ansal is in advanced stages of discussion with firms such as Tata Consultancy Services Ltd which has shown interest in taking space in its IT park in Lucknow, Jain said. This could not be independently verified. The Tata firm declined to comment.
Ansal will fund the development of SEZs and IT parks through Rs1,000 crore of equity, to be raised in part from private equity players, and debt and other funding from financial institutions to the tune of between Rs1,000 crore and Rs2,000 crore.
IL&FS Investment Managers Ltd has picked up a 49% stake in the company’s proposed SEZ in Gurgaon for Rs160 crore paying part of the cost of the land acquisition there. HDFC Property Ventures, the real estate investment arm of the eponymous bank, has also picked up a 33% stake in Ansal’s SEZ in Greater Noida for approximately Rs40 crore. A HDFC spokesman said that senior executives of the company could not be reached for comment.
Work on the Raheja’s SEZ has started and the first phase of the project consisting of 255 acres is expected to be completed in between three and five years, Navin Raheja, chairman, Raheja Developers said. Raheja is negotiating with both Indian engineering manufacturers and foreign engineering firms to take space within the SEZ.
Abhishek Gupta, head of research, Jones Lang LaSalle, India said developers were attracted to SEZs since it was “less risky than retail or residential”. But, “the demand for IT space is still there but supply which was not there two to three years ago is expected to double and treble and this will create a temporary situation where supply exceeds demand,” he added, predicting this would put pressure on rentals at SEZs.
Development of SEZs has been a controversial subject because of land acquisition issues as farmers and land owners have protested their land being converted into such zones.
In Raheja’s case, the company said that it did not face any such issues because it acquired the land directly from the land owners at the market price. “We did not ask the government to acquire land for us,” Raheja said. “As part of our agreement with the land owners, we have agreed to give employment to two persons from the family of land owners for every five acres acquired from them.”