BackMonetization of airport land may bring windfall for operators, builders
Budget proposal on modification of land-use policy under AAI Act likely to lift valuations for existing airport operators
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New Delhi: The move to sell land owned by airports across the country is likely to bring windfall gains for real estate developers and lift the valuations of existing airport operators, analysts say.
The government in the Union budget presented on Wednesday said the Airports Authority of India (AAI) Act will be amended to enable effective monetization of land assets and that the money thus raised would be used to upgrade airports.
In essence, AAI, which owns most of the country’s 125 airports and holds 50,000 acres of urban airport land, will now be able to change its land usage policy.
So far, airports were allowed to use their land only for airport-related activities such as car parking and hotels.
Now they can also sell land developers who want to build multiplexes, shopping malls and convention halls.
“Monetization of land would require some significant changes in the Airports Authority of India Act. For example, the demand in the market is for multiplexes, shopping malls, convention centers. But the AAI Act allows us to monetize airport land by sale and lease for very limited purposes. The proposed amendment will make us in tune with the market," AAI chairman Guruprasad Mohapatra said.
The move will also help GMR Infrastructure Ltd-run Delhi airport and GVK Power and Infrastructure Ltd-operated Mumbai airport to improve their valuations. Both airports are on lease from AAI for 30 years, extendable by another 30.
Delhi airport has 5,000 acres of land and Mumbai airport has about 2,000 acres.
Both firms have indicated they would like to sell stakes to reduce debt and aviation consulting firm CAPA said in a September report that it expects “GMR and GVK divestments could pave the way for leading foreign groups to enter the Indian market."
Recently, Delhi airport also gave out 200,000 sq. m of space to Bharti Realty Holdings to build what will be one of India’s largest shopping malls.
GMR and GVK declined to comment.
At the time, the airport had some concerns on whether this could be questioned later.
“In effect this new move legalises this," said a person familiar with the development, declining to be named. “It will certainly help valuations."
In the first phase of airport development, Delhi airport had leased out 45 acres of land to build hotels and raised Rs1,471 crore in upfront fees to fund the Rs13,000 crore airport modernization plan.
An AAI official who did not want to be named said private-sector companies have been lobbying the government for the move to change the land-use policy for several years.
“The private sector was very keen on change of land usage. This matter was not being allowed for a long time," this official said. “The real benefit will come to Delhi and Mumbai airports as they are within the city and have big land bank. That’s the whole play."
The 350-acre Safdarjung Airport complex in the heart of the capital, which also houses the aviation ministry and the AAI headquarters, has long been eyed by commercial developers, but comes under a high-security zone. The airport is used only for VIP flights, including those by the prime minister.
A top government official previously with the aviation ministry said he worries about the land and long-term impact on AAI. “AAI has been monetizing it for a long time by leasing the lands out on a consideration of land rent or revenue share. What is new in this? I understand that the proposal is to sell the lands to real estate developers. Some friendly developers will be able to buy the land. AAI will get one-time income and be satisfied with it," he said, declining to be named. “If the intention is to wind up AAI as fast as possible, it appears the right strategy."
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