Revised IT/ITES-SEZ norms to benefit real estate
New Delhi: On a move to stimulate commercial real estate in India, the Government has done away with the mandatory requirement of 10 hectares of minimum land area for setting up an IT or ITES special economic zone (SEZ). It has set built-up area requirements to be met by SEZ developers.
They now need 100,000 sqm for the seven major cities, 50,000 square metres for Category B cities and 25,000 square metres for the remaining cities. With this reform, in cities such as Bangalore and Chennai (where the FSI for IT Parks is as high as 3.25-3.75), an SEZ can now come up on a small chunk of land with 7 acres too.
The government on April 18th, announced the new reforms, including easing of land requirement norms and an exit policy, to rekindle investor interest in SEZs.
Compared to the previous set of requirements, the new amendments have many benefits. As an outcome of this move, many IT companies will now be able to launch their own SEZs. Earlier, only the IT biggies could have their own IT SEZs, given the capital required to buy 25 acres land. But now, even small developers will be able to buy smaller contiguous land parcels and develop their own SEZs.
Under the previous norms, some of the developers had even urged the government to cancel their SEZ licenses as they had failed to acquire large land areas. Implementation of Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) has also adversely affected the growth of SEZs besides economic slowdown.
Further, the new SEZ reforms will pave way to more mixed use developments. The IT SEZ developers who have already met the criteria of having 100,000 sqm built-up area, will be allowed to transform the remaining land for residential use, giving the mixed-use edge. They can use such land to develop walk-to-work residential projects. Developers can divide up their land holdings and give smaller parts to IT companies to develop their own IT SEZs.
The reforms in SEZ norms also makes it easier to exit from SEZs given that transfer of ownership of SEZ units (including sale) has been allowed. Real Estate Private Equity Funds with foreign capital are allowed to take up smaller deals which is likely to attract more FDI into the sector.
The infusion of FDI into the real estate markets of smaller cities can also become a critical factor in IT/ITES companies looking to move into these cities. It will ensure an obvious positive impact on their local economies and also the growth of their real estate markets across all segments.
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