Kolkata: Real estate developers are reviving big-ticket projects in Kolkata after securing a commitment from the West Bengal government that “some kind of incentive” would be offered to help them emerge from the downturn. The projects had been halted for at least 18 months.
States such as Maharashtra, Gujarat and Uttar Pradesh have already announced incentives for real estate developers. Maharashtra has raised the so-called floor space index, or FSI, a measure of the amount of covered space that a developer can set up on a plot of land. Uttar Pradesh is asking developers to put up a smaller amount than before at the time of allotment for state government projects.
“Demands (for incentives) from real estate developers are reasonable,” said Asok Bhattacharya, West Bengal’s minister for urban development. “We are examining the legal aspects and hope to announce some kind of incentive soon.”
Among those restarting construction of key projects in Kolkata are Emaar MGF Land Ltd, which plans to build two 250-room hotels under the JW Marriott and Holiday Inn brands, and local players such as Dhoot Developers Pvt. Ltd, South City Projects (Kolkata) Ltd and Merlin Projects Ltd, which are building large commercial complexes in partnership with the Kolkata Metropolitan Development Authority, or KMDA—an arm of the state government.
Road to recovery: An under-construction complex in Rajarhat, Kolkata. Consultants say real estate prices in Kolkata have begun to firm up. Indranil Bhoumik/Mint
Emaar MGF had in April 2006 secured on lease a 5.9-acre plot in Kolkata paying KMDA a little over Rs200 crore, but till now only “50% of the piling” has been done, according to the firm’s draft prospectus filed with the securities market regulator Securities and Exchange Board of India for its forthcoming initial public offering.
An official at KMDA said Emaar MGF has indicated to it that construction of the two hotels would restart “in early 2010”. The KMDA official spoke on condition of anonymity because he is not authorized to speak to the media.
“Due to the global economic downturn, the demand for accommodation in the Indian hospitality sector has declined in the past year,” a spokesperson for Emaar MGF said in an emailed statement. “As a consequence, in the short term, we have decided that we will commence developing hospitality projects only once we have obtained financial closure, which we plan to obtain through an optimal mix of equity and debt financing.”
Jointly with KMDA, Dhoot Developers is building a 750,000 sq. ft office complex in Salt Lake—the hub of information technology (IT) firms in Kolkata—on a 4.6-acre plot.
It secured the lease for the plot by offering Rs188 crore in a March 2008 deal, and has so far paid around 10% of that amount to KMDA, according to the official quoted earlier.
“Though I don’t think the downturn is fully behind us, we can’t afford any further delay,” said Dhoot Developers managing director Pawan Dhoot.
South City Projects and Merlin had formed a consortium and secured two projects from KMDA—a commercial complex at Nonadanga on the outskirts of Kolkata and a 4.3-acre IT-cum-commercial complex at Salt Lake.
In March 2008, they offered KMDA Rs158 crore for the land in Salt Lake, and the total cost of the project, which was to be completed by 2010, was then estimated at Rs300 crore.
“Though we are ready with our building plan, we can’t start construction immediately because there are some legal issues with the land (at Salt Lake),” said Pradeep Sureka, a director of South City Projects. “Because of the slowdown, we chose not to push things... We expect the government to sort things out soon.”
On the Nonadanga project, he said there were delays in obtaining clearances from the state government because of the general election in April-May last year. “But now we are hopeful of obtaining all approvals by March, and we should be able to start work immediately thereafter,” he added. However, because of the delay, these projects could now cost 8-10% more, according to Sureka.
Developers are lobbying state governments for incentives to recover cost overruns.
Property consultants say real estate prices in Kolkata have begun to firm up. “The second half of the current fiscal has seen many more sales and bookings compared with the first six months,” said Kaustuv Roy, executive director at the Indian arm of Cushman and Wakefield Inc.—a consulting firm. “Developers are probably betting on property prices remaining firm for the next two-three years, by which time most of these projects would be ready for possession.”