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Knowledge cities on hold over land issues, lower demand

Knowledge cities on hold over land issues, lower demand
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First Published: Sun, May 10 2009. 09 22 PM IST
Updated: Sun, May 10 2009. 09 22 PM IST
Bangalore: In the summer of 2006, the Karnataka government conceived the Bidadi Knowledge City, 45km south-west of Bangalore, as a hub for the world’s top information technology and biotech firms. At 9,000 acres, it was touted to be one of the country’s biggest realty projects, and was to rejuvenate Bangalore, India’s crowded technology capital.
Later that year, DLF Ltd, today India’s largest developer by market value, won a global tender for the project, estimated to cost Rs50,000 crore, raising hopes that Bidadi would soon become a satellite township to Bangalore.
Last month, DLF walked away from the plan, blaming the state government, its partner in the project, for delays in acquiring land.
A similar fate looms over some half a dozen other proposed so-called knowledge city projects in the country if market conditions don’t improve soon.
Since then, in addition to the Bidadi project, Sabeer Bhatia, a millionaire investor best know for founding free email service Hotmail, has proposed a knowledge city near Chandigarh and another in Dholera, Gujarat; Mumbai-based Akruti City Ltd drew up plans for two projects in Navi Mumbai and Ahmedabad; and the Gujarat government in January announced plans for two more.
The Akruti and Bhatia projects have been shelved as the developers and entrepreneurs involved are now shying from such long gestation projects because of delays in acquiring land and a severe cash crunch in the real estate industry triggered by the global slowdown.
Knowledge cities typically are enclosures of research-based industries and educational institutes, a physical bridging of industry and academics. In India, though, these projects have evolved as real estate ventures on large agricultural land parcels, primarily as partnerships involving state governments, realty developers and entrepreneurs trying to cash in on the property boom of the past few years.
But as land asset prices rise in tandem with India’s prosperity—the country’s national income has trebled since 1991—the high land acquisition costs make for the first hurdle. In the Bidadi project, for instance, acquiring 9,000 acres of land alone would have cost DLF and its partner Limitless Holdings Ltd at least Rs3,200 crore.
The then Karnataka administration, led by chief minister H.D. Kumaraswamy, had announced the project expecting large investments, and attracted bids from 32 consortia.
After DLF’s exit, the current Bharatiya Janata Party government in the state is testing the project’s commercial viability, but is not sure if it can find takers if it floats a fresh tender.
“The commercial component would not be able to subsidize infrastructure anymore under the present economic condition. We are rethinking on the format and are planning to first develop the infrastructure through government agencies,” Arvind Jadhav, principal secretary (infrastructure), government of Karnataka, told Mint in a recent interview. He did not specify the reason for the delay in acquiring the land. (Jadhav has since been appointed chairman and managing director of National Aviation Co. of India Ltd, which runs the Air India branded airline.)
Globally, knowledge cities are planned with a focus on research and development as in Singapore, Hsinchu in Taiwan, and in Silicon Valley, US, said Rajdeep Sahrawat, vice-president, National Association of Software and Services Companies, better known as Nasscom, an industry lobby.
“Building knowledge cities is not developing big, gated communities or IT parks. They should be ecosystems involving industries, commercialized research and development activity along with academic centres. That has not been the focus here (in India),” said Sahrawat in a phone interview. “Knowledge cities are at a nascent stage in India and the challenge would be to resist making real estate projects out of them.”
Bhatia’s proposed Nano City Haryana Ltd, an 11,000-acre knowledge city near Chandigarh in partnership with the Haryana government, is modelled on Silicon Valley but it too has hit the same hurdles the other projects have.
“We’ve encountered delays because of land acquisition issues,” Bhatia said by email on Friday. “There is a general economic slowdown in the world today, but we’re confident that we will come out of this well.”
The project was projected as a 10-year venture with an initial investment of Rs400 crore for companies involved in software development, nanotechnology, drug discovery, bio-technology, energy research and semiconductor research. Bhatia has a 52% stake in it, the Haryana government holds 10% and Parsvnath Developers Ltd, the remaining 38%.
Pradeep Jain, chairman of Parsvnath Developers, admits his company doesn’t have experience in developing a knowledge city, and they got into the project because it was an attractive deal. “(But) everyone is sceptical about long-term investment returns now and no one wants to block cash flow. Even though the project is fully sanctioned, you need money to acquire the land from farmers. And even if we acquire the land, there is no guarantee of its offtake,” said Jain.
Akruti City too has put on hold its Navi Mumbai and Ahmedabad projects till the economy bounces back, its chairman Hemant Shah said on Wednesday. The proposed projects, with a combined investment of about Rs2,000 crore, was scheduled to come up in the next two years but had to be shelved because of the ongoing downturn.
India’s first large-scale knowledge city, the 200-acre ICICI Knowledge Park in Hyderabad, which came up in 2000, too is slowing. Chief executive Deepanwita Chattopadhyay, who counts EI Dupont Inc. and GVK Biosciences Pvt. Ltd, among 35 company-tenants at the park, had planned to add 30,000 sq. ft of space this year but said, “We will now have to check the demand before we go ahead.”
Meanwhile, the Gujarat government remains upbeat about the prospects of the two knowledge cities it announced at the Vibrant Global Investors Summit in January.
“There are multiple industrial parks and knowledge cities planned in the state. We will ensure that land acquisition, which is a major hurdle in other states, is smoothly done through negotiations and we are confident that there will be no dearth of investors,” said K.T. Vyas, assistant general manager (investment), iNdexTB, a state government organization.
Vyas confirmed the delay in Bhatia’s Dholera project, but said the decision to shelve the Akruti project was taken by its developers.
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First Published: Sun, May 10 2009. 09 22 PM IST