New Delhi: Around 1.1 million sq. ft of commercial space will soon be available in the heart of New Delhi, with the Union ministry of urban development clearing a plan by the Indian Railways to develop the space on the land it owns and use the proceeds to finance its expansion programmes.
Real estate advisory firm Cushman and Wakefield declined to put a value on the space, saying the valuation could change depending on zoning and allowed usage patterns. However, a Bloomberg story in December had pegged the value of the site at about $2.5 billion (Rs9,900 crore), quoting data from a Cushman and Wakefield study.
Mint couldn’t immediately ascertain whether zoning regulations in central Delhi will allow this space to be used for offices or whether it can be used only for retail outlets.
“In Connaught Place, there is very little grade A office space. At the most, there is about 200,000 sq. ft of good office space. The location is prime, so I don’t think demand will be a problem,” said Sanjay Varma, executive managing director, South Asia, Cushman and Wakefield.
The railways needs Rs2.5 trillion over the next five years and Rs1 trillion of this amount is expected to come from public-private partnerships, or PPP schemes, according to the railway Budget presented in February.
Mint had reported on 8 February that around 20 companies, including Larsen and Toubro Ltd, Hindustan Construction Co. Ltd, Lanco Infratech Ltd, DLF Ltd, Reliance Industries Ltd, GMR Infrastructure Ltd, Dalmia Cement (Bharat) Ltd, Videocon Industries Ltd and Bharti Enterprises were understood to have shown interest in the project, which is expected to cost about Rs5,000 crore.
The railways will lease the land to the company or companies that win the bid to develop this project for a certain period of time. The tenure of the proposed agreement isn’t known.
With the government clearing the plan, companies are preparing to submit their bids ahead of the 31 May deadline.
However, some of the bidders are worried about delays arising from procedural clearances involving local civic bodies and the traffic police.
“The railways has a track record of announcing projects and then not taking it forward. This has happened before with plans for a coach factory in public-private partnership mode, which is still in the air after two-and-a half years,” said a consultant for one of the bidders, who did not want to be identified.
An official of the Railway Board, the apex management body of the railways, refuted the claim and said there was clarity on the project now. “Now that the approval for commercial development is in place, there will be a speeding up of processes.”
The New Delhi railway station, which handles an average of 350,000 passengers and 276 trains a day, is built on 87 hectares of land in the heart of the Capital’s business district. It is one of the 22 railway stations that the railways eventually plans to hand over to private partners. Apart from New Delhi, the railways is looking to bid out development projects in the Chattrapati Shivaji Terminus in Mumbai and the stations at Patna and Secunderabad soon.
The railways wanted the urban development ministry to clear the development of 1.3 million sq. ft of space. The ministry cleared 1.1 million sq. ft so as to not violate existing building regulations in Connaught Place, near the station.
“They (railways) told us that 1.1 million sq. feet is the bare minimum required to make the project viable,” a senior urban development official said. “After all, the bidders have to be able to make their money from commercial development only,’ he added.
The Northern Railways’ general manager, Sriprakash, who goes by one name, said the department was satisfied with the land approved for commercial development. “As of now, we are in the process of getting the required clearances from all the government agencies concerned such as traffic police, Delhi Development Authority and others.”
Analysts say mixed land use, including areas for retail, office space and hotel developments would derive the best value. In the case of airport development, the government does not allow office space (but, it does allow retail and hotels).
Meanwhile, the Planning Commission is preparing a model concession agreement for PPPs. This puts down the basic principles of the commercial agreement between the railways and private partners. It is expected to be finalized by July, according to Planning Commission officials involved in the preparation of the document.