IT hubs like Chennai, Bangalore will see more SEZ developments

The relaxation of land norms for SEZs will have wide-ranging implications for commercial real estate development in the country.

SEZ in Chennai -Marg swarnabhoomi

Instead of 25 acres which used to be the minimum required area for developing a single product SEZ, now SEZs can be promoted on even a 6.6 acre land as IT development has accorded higher floor space index (FSI is ratio of land area to built-up area) in many cities. Chennai, for instance, permits 3.75 FSI for IT development. As per the new norm, the building should have one lakh sqm area (10.76 lakh sq ft) to be classified as SEZ in seven major cities. In category B cities, the minimum built-up area specified is 50,000 sq metres and in remaining ones it is 25,000 sq metres.

The most encouraging aspect is that many more IT companies will now be able to launch their own SEZs. Previously, only the largest IT players could have their own IT SEZs, given the capital required to buy 25 acres land. Developers will now be able to aggregate smaller contiguous land parcels and turn them into SEZs.

The vacancy level was very low in SEZs located close to Chennai city. Even as about one crore million sq ft of small IT parks is lying vacant in the city and outlying areas, there is no space in SEZs. “Owing to relaxation of norms, at least two to three new IT SEZs will come up close to the central business district in Chennai” While SEZs fetch between Rs 40 and Rs 50 per sq ft as monthly rental, stand-alone IT parks are available at even Rs 20 per sq ft.

Further, some IT SEZ developers who have already met the one lakh square metre built-up area criterion will now convert the balance land for residential use, giving the mixed-use edge while also making the formation of many more walk-to-work residential projects possible.

Real estate developers will now be able to also divide up their land holdings and allocate smaller parts to IT companies to construct their own IT SEZs.

Another important outcome is that it will now become easier to exit from SEZs, given that the transfer of ownership of SEZ units – including sale – has now been allowed. Moreover, real estate private equity funds with foreign capital will now be able to do smaller deals, and this is bound to bring in more FDI into the sector.