Monday, October 29, 2007

Morley makes Ridgewell head of Asian property

Morley has appointed Nick Ridgewell to a newly-created role as head of its Asian property business as part of the group’s expansion into the Asian markets.

Morley launched its Asia business in April this year and plans to invest $10bn in the region over the next four years.

The company plans to work with multiple joint venture and fund partners in Japan, China, South Korea and India to source developments and properties.

Morley currently has over $60bn invested in property assets in the UK and Europe.

Ridgewell joins from Macquarie, where he was running the group's real estate business in Hong Kong.

This included responsibility for managing listed and unlisted real estate funds and execution of property investment strategy and transactions throughout Asia.

He has previously been CEO of the Macquarie DDR Trust, a REIT listed on the Australian Stock Exchange, and has also worked for Coopers and Lybrand in Sydney.


Tata Realty to set up USD 750 mn real estate fund

Mumbai, Oct 29 (PTI) Tata group company, Tata Realty and Infrastructure Limited (TRIL), will set up a seven-year, USD 750 million real estate fund, a top company official has said.
The real estate fund will comprise long-term investors such as pension funds, insurance companies and government organisations, Tata Realty's Managing Director Dinesh Chandiok, told reporters on the sidelines of the US-India CEO Forum here today.
The company hopes to close the fund in two weeks' time, he said.
On the prevailing real estate prices, Chandiok said demand-supply gap in the industry still existed and hence, realty prices may witness a steady rise.
According to him, the booming stock market and capital inflows into the country might not have much of an impact on realty investment.
"There may be some diversion of funds into the stock market, but the impact on realty investments may not be much," Chandiok said.
Tata Realty is a 100 per cent subsidiary of Tata Sons and is its real estate and infrastructure development arm, focusing on infrastructure projects related to airports, urban infrastructure, roads, bridges, SEZs and logistics parks, among others. PTI


Realty boom finds slower rhythm

The real-estate boom is far from over, but is maturing after a frenzied round of activity that has seen developers sprout, projects mushrooms and new areas turning hot.

Despite the slowdown or marginal correction in the secondary market in real estate, prices will rise, albeit at a slower pace, in the near to medium term, leading developers from across the country said at the HT Estates Conclave on Saturday.

As customers are increasingly exposed to world-class products through various sources of information, they are more demanding in terms of accessories and other amenities.

“For quality products, there is a willingness to pay premium,” said Sanjay Chandra, managing director of Unitech Ltd.

Despite the fact that the real estate sector is an engine of growth, growth in the sector is stifled by excessive regulation, said Niranjan Hiranandani, managing director of the Mumbai-based Hiranandani Group. “In the last 15 years of liberalisation, the government has relaxed norms in almost every sector, barring real estate,” he added.

Inaugurating the event, Jaipal Reddy, Union Minister of Urban Affairs said the sector was a big job spinner.

“As per government estimates, the sector needs an investment of Rs 3,50,000 crore over the next five years. Since the government is expected to spend Rs 1,00,000 crore, these investments will be met through the public-private partnership model,” he said.

The issue is not the demand, as there is demand for good and affordable houses everywhere, said Rohtas Goel, chairman and managing director of Omaxe Ltd. “Land, being one of the most critical components, will continue to influence the price, for which the government policy is also important,” he said.

India is a long-term story and the real estate sector is just at the cusp of a new age, and quality drive premiums and price appreciation, said Yash Gupta, joint managing director of Hines India, a wholly-owned subsidiary of Hines Inc, one of the world’s leading developers.

The rise in demand in even ‘B’ and ‘C’ towns is because people want better lifestyles, said Pranav Ansal, director, Ansal API. There are many old B-grade towns such as Jodhpur, which did not even have sewer lines until two years ago and private developers are driving the change, he said.

Given the demand trend, the sector is expected to grow by more than 30 per cent every year, said Anshuman Magazine, managing director of the Indian unit of leading real estate consulting firm CB Richard Ellis, who moderated the session.

Ashish Puravankara, director at south-based Puravankara Projects Ltd, said developers had made super-normal profits in the past three years because of their old land banks, while now they have to buy land at higher rates.

“Their profit margins are getting squeezed as they cannot afford to increase the price exponentially,” he said.

In other words, the real estate boom is for real, but current ups and downs mark a growing up phase.



What state govts can learn from de Soto and a market fundamentalist

If capitalism has to work in developing economies, including India, it has to become more inclusive, it has to understand and deliver property rights to more people. That’s what Peruvian economist Hernando de Soto, adviser to 40 governments, told me last week as we discussed the future of capitalism in India. For this, he said, governments need to first study the laws that govern property rights and then change them so as to reflect their country-specific realities. The conversion of squatter rights to legal ones, for instance.

His argument, that that has been the case across the world and one that must be implemented sooner rather than later as the developing world, including China and India, joins the universal globalisation phenomenon, is compelling. Only a small percentage of people, around 20 per cent, in developing economies (no data available for India yet) practically function under the western system of legal rights, he said. The rest of the population functions like the way people in the US and Europe used to, as close as just hundred years ago, with informal or non-legal systems of rights.

But implementing and delivering clean property titles to the poor is a far cry, a very long-term idea that will get no political hearing today, particularly in a fractured polity like India’s. The task gets further complicated when nine out of India’s 10 land titles are under legal dispute in one form or another, as a McKinsey report notes. Take de Soto’s theory a little further and you’ll probably reach a conclusion that like the sub-head of his 2000 book The Mystery of Capital, capitalism may not be able to triumph in India. While the dreamer in me disagrees, my pragmatic side tells me that in some states the bridge towards that triumph is being built in the form of lower stamp duties.

A quick look at another sector shows the positive results of lower transaction costs, unarguably one of the first steps towards efficiency and inclusion. I’m talking about the impact that finance, markets and lower transaction costs, when replicated in the property market, can deliver. As brokerage rates on share transactions fell by 92 per cent, from 2.5 per cent in 1992 to 20 basis points (that’s 0.20 per cent) today, turnover in the cash segment of the Bombay Stock Exchange rose from Rs 45,696 core to Rs 816,074 crore in 2006 (almost an 18-fold jump), the number of trades rose 20 times to over 260 million, and the average trade size rose 8.5 times to Rs 30,911.

This model needs to be urgently cut-pasted on property markets through lowering of stamp duties. Among others, the Delhi government is doing very well on this front. Stamp duties in the city, which had been steady at 8 per cent between financial year (FY) 1981 and FY 2001 jumped 5 percentage points to 13 per cent in FY 2002. In FY 2004, the government brought it back to 8 per cent. The result: between 2003 and 2007, the government’s receipts from stamp duties rose from Rs 382 crore or 6 per cent of total receipts to Rs 850 crore or 8 per cent of total receipts. If the Rs 1,350 crore target (10 per cent of total receipts) for FY 2008 is reached, the state would have seen receipts from stamp duties grow at a compounded rate of almost 30 per cent per annum — almost as fast as corporate India’s net profits.

Other states are learning too. West Bengal, for instance, was an early starter, when in FY 1995, it cut a six-year outrageous 21.2 per cent rate to 14 per cent and then, two years later to 8 per cent. Uttar Pradesh reversed a 10-year 14.5 per cent rate to 10 per cent in FY 1999. On the other hand, Madhya Pradesh, which raised rates from 2 per cent to 11.5 per cent in FY 1980 and Gujarat, which raised rates from 5 per cent to 7.5 per cent in FY 1983 and then further to 10 per cent in FY 2001 are the laggards in the rather painful history of stamp duties in India.

Going forward, the Delhi government plans to reduce it further — the state cabinet has approved a fall to 6 per cent for men and 4 per cent for women — which is good news for all stakeholders: households, the real estate and construction industry and the government. By lowering rates, the incentive to dupe the exchequer of legitimate taxes falls. The average black or unaccounted cash component in Delhi, at between 40 and 60 per cent, remains high, but it’s early days. Marry this fall in stamp duty rates with the way the Central government is trying to plug every possible loophole on the spending side, and the future of unaccounted wealth moves from black to bleak. Scholars have argued that state governments could double their stamp duty receipts if properties were valued correctly.

But like a chicken-and-egg syndrome, I don’t think that’s likely to happen unless, ceteris paribus, stamp duties fall like they have in Delhi, West Bengal and Uttar Pradesh. If stamp duties are looked upon as a service delivered to households to enable their most expensive transaction, which in turn facilitates wealth creation through credit availability and new instruments like reverse mortgages, it should, like brokerage rates in securities transactions, be brought down to levels that match the scale and velocity of such contracts, the net result of which could well be a 1.3 per cent addition to the GDP growth rate, according to McKinsey.

Of course, all these issues — de Soto’s legal, finance ministers’ fiscal, market participants’ transactional, policymakers’ economic, home ministers’ social — need to be resolved simultaneously. But until politics finds a way to work on the rest, let’s learn from the markets and rewrite the transaction cost numbers. If the rising Sensex is a manifestation of lakhs of investor inclusion due to lower costs, it’s about time we replicated the inclusion model for crores of households in property markets and reduced the friction to mass wealth creation. The National Housing and Habitat Policy’s recommended rate: 2-3 per cent; mine: less than 1 per cent; let the debate — and wealth creation — begin.



Royal Palms to invest Rs 1,500 cr

MUMBAI: Real estate developer Royal Palms India on Sunday said it would invest Rs 1,500 crore in next three years for developing an eight million sq ft property in suburban Goregaon.
"We would build 5 star, 4 star and 3 star hotels, IT offices, residential properties, villas and a retail mall. We would be roughly investing Rs 1,500-2,000 per sq ft area for construction," Royal Palms India Joint Managing Director Dilawar Nensey said.
The Rs 1,500 crore would include only the construction cost and not the land cost.
Royal Palms has a land bank of 240 acre in Mumbai, 290 acre near Pune and 80 acres in Alibaug.
Of the 8 million sq ft area in Goregaon, the company has got special economic zone (SEZ) status in 6 million sq ft area. So, it would build its IT offices in the SEZ area so that the benefits of SEZ could be passed on to IT players, he said.
Royal Palms has built 600 IT offices till date and would build 400 more.


Decorative stock: Nitco Tiles

Nitco Tiles is a play on the ongoing construction boom and the changing taste of consumers.

Despite strong competitive pressures in the domestic tiles industry, Nitco Tiles has been able to emerge as one of the largest players. The company, which was the fifth largest player about two years ago, is now the second largest player having a diversified product portfolio and a national distribution network.

Nitco, which mainly makes floor ceramic and vitrified tiles, is now charting a new growth strategy, expanding its existing capacities, investing in real estate and planning to increase exports. It wants to acquire increase its market share as well.

Compared to other developed countries, using tiles in flooring is still new as most Indian households still prefer the traditional stone tiling.

However, this is changing because of higher disposable income, strong demand from the retail and commercial real estate and increasing globalisation. Today, the industry is growing at about 20 per cent a year and is expected to do well.

Nitco is a leading brand with a market share of 15 per cent. It offers a diverse range of flooring solutions such as vitrified and ceramic tiles, and marble. Also, it will now leverage its network of 550 dealers and 5,000 retailers while diversifying into products such as wall tiles, sanitary ware and bathroom fittings.


Rs crore


OPM (%)

Net profit

NPM (%)

EPS (Rs)

PE (x)

Besides product diversification, Nitco is also looking at exports to the US and Europe. These are considered to be large markets offering high margins.

�As a part of our strategy to enter into the export market, we are in talks with players in Europe for a suitable acquisition or a JV with an established player,� says B G Borkar, CFO, Nitco.

Considering its long term growth plans, it is expanding its capacities. It will double its ceramic capacity at Alibaug to 24,000 square metre a day by March 2008. It is also creating 8,000 square metre per day capacity for vitrified tiles, which will be commissioned by January 2008.

�We currently outsource about 30,000 square metre per day of vitrified tiles form China. With this new facility our total vitrified tiles capacity will become 38,000 square metre per day,� says Borkar. Nitco, which operates at 100 per cent capacity, will be able generate an additional turnover of around Rs 300 crore from new capacities.

Nitco has grown revenues at about 50 per cent over the last three years. However, as the scale is increasing, it may not maintain this growth from the tiles business alone. It expects the tiles business to grow at 30-40 per cent over the next few years. However, to sustain higher growth in future, Nitco has entered into the real estate business.

The company has formed a wholly owned subsidiary Nitco Realties. It currently has land bank of 1.37 million sq ft area consisting of eight projects in south Mumbai, Alibaug and Thane. These properties are valued at Rs 405.2 crore by Knight Frank. Most of these projects will be completed and start reflecting in revenues by year 2010 and 2011.

Nitco has attracted institutional investors such as Promethean, Reliance Mutual and HSBC. At Rs 323, the stock is trading at a P/E multiple of 13.9 times its FY08 estimated earnings and 10 times FY09 earnings. Nitco Tiles can be a good long-term investment to play on India�s booming real estate sector as a supplier to the sector as well as a developer.



Demystifying realty

For valuing real estate businesses, the devil sure lies in the detail.

�He who dances close to the graves, always has to be careful he doesn�t fall in.�

This was the last sentence of an article written by the celebrated American real estate investor Samuel Zell, in which he described his strategy of profiting from distressed real estate.

Zell, nicknamed �The grave dancer� after the title of his article, has the reputation of being one of the most successful real estate investors, without ever venturing into the real estate development business himself.

In India, going by the dynamics of the real estate markets, many an investor holding real estate stocks in his portfolio would aspire to get close to Zell. Along with being a smart investor, one also has to be adept at predicting real estate trends to be as successful as Zell.

Investing in real estate has not been too different on this side of the planet either, when it comes to the basics. But it is the basics where we are most likely to falter, while valuing realty businesses � and the pitfalls are plenty.

The haves�
The mad rush to invest in realty businesses due to the rapid appreciation of real estate prices witnessed across the board, has been a mixed blessing of sorts for both real estate developers and investors.

Real estate players found an opportunity to raise money to fund their businesses and investors made a quick buck from the steep appreciation in real estate stocks. The real estate stock rally over the past two years was mainly driven by the skyrocketing real estate prices due to the high demand which in turn was fuelled by easily available home loans.

� and the have-nots
Since the real estate industry is at a nascent stage of getting itself organised, there is hardly any credible historical information available in terms of the demand-supply scenario and prices.

Further, with the vast geographic expanse over which a number of developers have their operations spread, analysts find it difficult to ascertain a precise valuation on their own and are compelled to go by the claims made by companies.

Taking into account a company�s land reserves and the market value of its ongoing projects, analysts therefore, estimate a net asset value (NAV) of the business at the prevailing market price, which is then discounted to arrive at a per-share valuation of the business.

�As the industry is yet to mature, the conventional price-earnings ratios or profitability ratios would be of little help. Therefore, a net asset value (NAV) based approach is taken which gives a fair idea of how much the company is worth at the time the NAV is estimated,� says Ritesh Vohra, director - investments, Saffron Asset Advisors, a real estate fund.


CMP (Rs)
EPS (Rs)*
P/E (x)*

Ansal Housing

Ansal Properties

Mahindra Gesco


* Trailing 12-month

�However, this approach is fraught with risks of subjectivity in discounting and many other blind spots,� he adds.

The method...
The NAV method ascertains the value of a realty business by summing up the present values of its assets which are in the form of land bank, existing and ongoing projects � all these translated into a saleable area.

�The assumption of the saleable area could differ from two analysts� points of view because both may differ on the assumptions of the floor-space index (FSI), the developable area over the given acreage and that of the prevailing market price of the assets,� says Sirshendu Basu, associate vice president - research, IL&FS Investsmart Securities.

Manisha Grover, head- strategic consulting and research at the real estate consultancy Jones Lang Lasalle Meghraj (JLLM) adds, �There is no standard practice prevalent to carry out valuations. Different valuers may follow different surveying and valuing standards.�

� and its madness
The biggest pitfall of considering a company�s valuation is the time-sensitivity of the NAV. The NAV of a real estate firm may change every day, as assets are added or sold, or as market prices change. Again, there is no prescribed guideline for realty companies to report the changes in their NAVs at regular intervals. This leaves plenty of room for guesswork on analysts� part.

Developers too, could misuse the NAV in a number of ways. Ramesh Jogani, managing director and chief executive officer, IndiaREIT Fund Advisors throws some light: �Going by the trends in India, a realty business commands a money market multiple of around 1.3-1.5 times on the value of its land bank, that of 8-10 times on projected profits, 10-12 times for the yield from rentals and income from service and maintenance contracts each.�

Jogani further explains, �Even if a real estate company buys land where it does not plan immediate development, the company�s valuation is pumped up by 1.5 times the value of this land. Again, the profit estimates of realty companies are vulnerable to execution risks, but the estimates could result into an immediate gain of 8-10 times the projected profit in the company�s valuation.�

Perhaps, this is the reason why Sebi has barred realty businesses from mentioning their NAV in the red herring prospectus while coming up with an initial public offering.

However, for the curious ones, the draft prospectus, in which most realty companies have mentioned their NAVs so far, are available publicly on the Sebi website.

Is NAV indispensable?
Until the realty industry matures, the conventional valuation metrics of price-earnings multiples, operating profit margins or return on equity will remain weak or unreliable. Till then, there is no alternative but to depend on NAV. �At least the method gives a starting point,� says JLLM�s Grover.

Adds Basu of IL&FS Investsmart, �But one has to consider a large number of firm-specific factors while arriving at a final number. These factors range from what proportion of land reserves is owned or is in the process of being acquired to the revenue model proposed by the firm.�

He gives examples, �For instance, a developer like Orbit Corporation aims to sell prime real estate achieving high realisations, while on the other extreme IVR Prime has a business model of providing affordable housing to the masses.�

IndiaREIT�s Jogani adds, �In addition to the business model, aspects such as the company�s cash reserves to fund timely execution, quality of tenants in case the company is in a build-and-lease model, the capital structure and the cost of capital would also change the rate at which one would discount the company�s NAV.�

The way out
Realty stocks have seen a roller coaster rally up and down over the past few months due to a number of reasons such as the increase and decline of housing loan interest rates, curbs on external commercial borrowings (ECB), high demand in tier-II and tier�III cities, rising cement prices, variations from execution promises and the like.

However, just going by the broader picture of demand-supply mismatch, investor frenzy for real estate IPOs has been evident. The average listing gains of the 16 realty IPOs between August 2006 and August 2007 were 71.5 per cent as compared to 22.6 per cent for all the 134 companies that launched IPOs in the same period, according to the recent FICCI-Ernst & Young report on Indian real estate.

Further, going by the number of issues in the pipeline, the outlook does not appear to be any less promising. However, this does not help investors defy the volatility which has gripped the stocks in this sector. Beyond listing gains, realty stocks are notorious enough to let investors down time and again. So, finally, how should one value real estate business then?


Market Cap
Rs crore

CMP (Rs)

Price (Rs)

Gain since
listing (%)

Returns (%)


Akruti Nirman



IVR Prime


Orbit Corporation

Parsvnath Developers

Puravankara Project

Sobha Developers

Keshav Misra, head-real estate investments, Baring Private Equity Partners attempts to answer: �One could go for a project-wise NAV of a realtor, estimating the cash flows from each project individually and then discount it to the cost of capital.

This is the approach taken by real estate investment trusts (REITs) globally.� However, it is possible for REITs to partner with developers at the project level, while retail investors are unable to do so. Further, in India, there are very few companies which operate on a build-and-lease model which entitles the real estate player with a steady stream of rental yields.

In a build-and-sell model, the cash flows are bound to vary according to the completion of projects. Saffron Asset Advisors� Vohra inches closer to the Holy Grail: �One cannot go by execution promises lying too far in the future. One should take a three-five year horizon for the company�s ongoing projects, estimate the resulting cash flows and for the rest, consider the market value of the land owned by the company to arrive at a fair valuation at any point of time.�

Biting the bullet
For the investor, the real question is what to consider while picking stocks. Analysts and fund managers say there is not just one standard tool to analyse the realty business.

Each company is a unique mix of myriad projects such as apartments, group housing, integrated townships, commercial complexes, technology parks, special economic zones and perhaps more. There are complications of part or full ownership, sale or lease, in-house development or contract development etc.

Among the Indian realty players, many companies have a unique proposition that make them interesting investments. DLF has a potential for significant cash flows through lease rentals and service contracts on an annuity basis, which makes the scrip attractive.

Unitech banks on its vast spread, while Parsvnath has execution capabilities to scale up rapidly. Orbit, Sobha, Omaxe and Puravankara aim to cater to premium buyers � an approach which gives them ample price-elasticity, but asks for robust cash reserves and funding abilities.

Akruti Nirman, HDIL, IVR Prime and Vipul try to walk the path in between, attempting to grab a share from both the extremes, thus balancing their project portfolio. Now, all that one has to do is scan through the numbers, estimate one�s own risk appetite and take a pick.



Thursday, October 25, 2007

Real estate boom devours castor area in AP

International airport, sponge iron units trigger uptrend

‘If an acre of land is going at about Rs 1-2 crore, who will grow castor?’

K.V. Kurmanath

Hyderabad, Oct 24

The agriculture sector is bearing the brunt of development in the periphery of Hydebard with a few thousand hectares of land falling prey to the real estate boom, triggered by the airport project at Shamshabad.

Hit badly

Castor crop is among to be badly hit. Mahboobnagar, which ranks number one in castor area in Andhra Pradesh, has lost 16,250 hectares so far this year. Against the normal area of 1.42 lakh hectares, castor has been in 1.24 lakh ha during the kharif season, that ended earlier this month.

The total castor area in Andhra Pradesh for the year is put at 2.35 lakh ha this year against 2.02 lakh ha last year. The average for last three years is 2.70 lakh ha.

Though Andhra Pradesh has gained some new castor area in districts such as Kurnool, the loss in the traditional areas has not helped in increasing its national share of 25 per cent. Andhra Pradesh ranks second after Gujarat in castor. Gujarat accounts for 65 per cent of India’s castor production.

The figures for Rangareddy district (in which the airport area falls) and Nalgonda areas are no better. Castor area has shrunk by 30-40 per cent in the last two years in these two districts that surround the State capital.

“If an acre of land is going at about Rs 1-2 crore, who will grow castor?” Mr Rajender Prashad Agarwal, President of AP Oil Millers’ Association told Business Line.

Real estate prices

Spurt in sponge iron units along the Shamshabad-Jadcherla belt and the trigger caused by the Outer Ring Road also resulted in steep hike in real estate prices in the traditional castor growing areas. The situation on the Srisailam road too witnessed sharp raise in real estate prices, he said.

Several grape gardens too gave in to the real estate boom, which seems to have slackened of late, in the last three-four years around the State capital.

“Had the State retained the traditional area, we could have increased our share to at least 30 per cent nationally,” Mr Agarwal said.

The real estate boom has resulted in yet another problem for the castor farmers in other surrounding areas. “They are not able to find labour in these areas as most of them would have gone to the city for work,” he said. “


Property boom is over

With the festive season underway, there has been a spate of advertisements for new property projects. It is important to examine these bids for funds closely, given the current state of real estate. Unless the sector is brought under regulation, it will mop up funds of a dubious kind. Unsuspecting investors can lose money and there could be a rise in loan defaults.
The rise and fall in prices over two years was triggered by excessive liquidity and speculation, caused by a flow of both white and black money. The cycles in the property sector are a result of its peculiarly unregulated nature. As a result, a hype around property becomes easier to create.
After the norms related to secrecy of Swiss banks were tightened a few years ago, black money flowed into this sector due to the lack of regulations. Vested interests would like the property sector to continue in an unregulated fashion.
The last year has seen real estate prices cool off, especially after the Reserve Bank intervened to increase the cash reserve ratio (CRR) of banks and housing finance companies raised interest rates, realising perhaps that they were instrumental in overheating the market. The easing of interest rates on both loan and deposit sides was a correction that was coming.
Housing finance companies and banks gave undue importance to property, vying with each other to extend loans to all and sundry. They created the belief that money invested in real estate will grow at higher rates than in other investment instruments.
The hype around land banks also fuelled the rush into property. When real estate companies talk about developing land banks, they cannot be taken at face value. If one were to calculate the resources required to develop infrastructure and housing in the thousands of acres which some real estate companies have at their disposal, the figure would suggest that they would need 10-15 years to develop these lands into usable habitats. For example, a company which claims to hold about 70,000 hectares in its land bank will need to invest Rs 100,000 crore to develop into viable housing and habitat. That is a tall order even for the big guns. The business models of such companies still work on speculative forces of hoarding and reselling.
Even as new tracts are developed in outlying areas, there are acres of bypassed land closer to town, more than what the housing industry might need for years to come. So much for land shortage.
Some of these companies are in a bind. With huge amounts having gone into buying land, they are short on funds needed to create projects for which bookings and promises have been made. Hence, they are divesting equity to generate funds. The IPO route of collecting funds has slowed down.
Foreign direct investment will not come unless land management laws are regulated at the central level. Black money is needed to purchase land. Political interests will prevent meaningful reforms to change the land management system of states. It remains to be seen whether market forces will push for change.
The sector suffers from a resource crunch and oversupply. With speculators moving out and end-users stepping in, prices should drop, except perhaps in the high-end market in the metros.
The US sub-prime crash was caused by too much money going into mort-gages which turned into defaults. Will India see a similar crisis in the mort-gage market? Are the right products being created for the right end-user?
Will the sector move towards the right fundamentals, or will it remain a speculator’s haven ?
There are indications of change.
The stock market is a more attractive investment option than ever, real estate companies are looking for equity partners, CRR is moving up, interest rates are down, and professional players are moving into real estate sector. The rosy years and months are over. The investor better be careful with his money.
The writer is an architect.


A place for some healthy fun

Are amusement parks the answer to soaring real estate prices? What scope for development do they have in the country and will they ever be able to replicate international theme parks? By Varun Soni

As the real estate sector surges ahead in the country, new formats are being introduced by developers in a bid to offer something new as well as stay afloat in this period of slowdown. One of the more lucrative formats is the concept of new age, world-class amusement parks-cum-malls. There are around 150 parks in India, with 10-15 coming up over the next few years. Worth Rs 3,000 crore, the industry has been growing at 25 per cent per annum during the last five years, according to industry experts.

While a world-class amusement park has already come up in Rohini in north- west Delhi by the name of Adventure Island, the company behind it, IRPPL (International Recreation Parks), is also planning to open the much-hyped Entertainment City in the heart of Noida by the year-end. The Entertainment City, spread over 150 acres and being set up at an investment of Rs 1,100 crore, represents a new class of parks that are under construction or are being planned around the country. The Adventure Island, on the other hand, is spread over 62 acres and has been built with an investment of Rs 200 crore.

Larger, better and with the costliest 'rides' around, they reflect a change in not only how park operators and real estate developers think about amusement parks, but also how state governments perceive them. Other upcoming projects include two planned by ISKCON, one at Vrindavan at an investment of Rs 1,000 crore and spread over 600 acres of land and the other at Bangalore at an investment of Rs 350 crore. The themes for the two parks would revolve around the stories of Krishna. The religious theme is held in common with a Rs 100 crore park being promoted by the Saagar family at Haridwar. Revolving around the epic Ramayana, the park to be called 'Ganga Dham' will be situated on the banks of the Ganga.

Chandigarh too will be getting its own mega park in the next three years. To be developed and operated by Unitech, the park would be spread over 73 acres and have an initial investment of Rs 250 crore. The south too hasn't been immune to the action with the WonderLa park on the outskirts of Bangalore. Built over 83 acres and promoted by the V-Guard group, the park has already been in operation for a year. As far as the scope of the sector goes, Ravi Madan, Director, IRPPL says, "The business potential is enormous. What we have seen up till now are low-standard and low-cost amusement parks, but now the trend is more in favour of internationally-styled, world-class parks. And if malls accompany these parks, it also results in impulse retail and merchandise."

The new leisure class

With growing disposable incomes and consumer aspirations coupled with the enormous tourism potential in India, demand for holiday homes and thus leisure real estate is booming.

According to the World Travel and Tourism Council (WTTC), India is expected to be the third fastest growing country in the world over the next ten years, as far as travel and tourism demand is concerned. That growth potential, coupled with the 19.8 per cent increase in the number of Indians living in India with financial assets of more than US$ one million, (compared to the 6.5 per cent growth worldwide) are important factors in promoting the growth of leisure real estate in India. Leisure real estate means planning mixed-use development and fractional ownership to boost tourism in India.

Leisure real estate also entails owning a second home, which many Indians are going in for today after satisfying their need for a first home. The demand for a second home is more in tourist destinations like Goa, Uttarakhand and Himachal. Says Radhika Shastry, managing director - Indian subcontinent, Group RCI, "With land bank choking in mega cities and people already having fulfilled their requirement of owning a home, the next step is to look for a second home. This comes under the purview of leisure real estate, which also encompasses timeshare/fractional ownership."

As far as the scope of this field goes, Arindam Kumar, general manager, marketing & retail Sales, Mapsko Builders says, "The scope for leisure real estate is very good. People want to enjoy their leisure time and for that they require a few good options. Nowadays, with the growing economy, the income status of the people is growing, leading to a change in tastes and wants. The demand for resorts, amusement parks, etc. is soaring in the market."

Says P K Sanyal, president, OSB group, "Growth prospects of this segment are really good. With customer preferences changing, everyone needs a different option. Therefore, developers have to invest taking stock of the rise in demand."

In fact, property experts opine that this segment will be a key driver of real estate in the country in the coming years.

Adds Prem Adip Rishi, chairman & managing director, MVL- Real Estate division, "One of the key drivers of leisure real estate will be tourism. India is expected to be the third fastest growing country in the world in travel and tourism demand over the next ten years. Hectic lifestyle is leading people to splurge on leisure activities to be able to unwind in the short respite time that they get. Companies have also substantially increased their spending on employee delight initiatives."

In fact, Indian tourism is expected to grow at the rate of 20-25 per cent per annum till 2017, posing a huge opportunity for wealth creation in our country. This makes leisure real estate a good investment option for developers. Says Kenneth May, chairman and CEO, Group RCI, "India is poised for growth in leisure real estate and is at the helm of an explosive economic growth in tourism. The market for leisure real estate today is expected to gain further momentum over the next few years. With growing disposable incomes and consumer aspirations coupled with the enormous tourism potential in India, the time could not be better for the industry to launch new leisure real estate models that will meet the needs of the evolving consumer."

Amitabh Kant, principal secretary (industries and commerce), government of Kerala and former joint secretary, ministry of tourism recently said at a 'Leisure Real Estate Symposium' held in the capital, "With the growing purchasing power of Indians, holidays are evolving into experiential and aspirational experiences for the affluent traveller. Through the Incredible India Campaign, we are focussing on opening up newer destinations and new experiences like rural tourism and medical tourism for both the inbound domestic and international traveller."

A number of small and upcoming builders have already announced projects in places like Haridwar, Rishikesh, Ramgarh, Vrindavan, Solan, Shimla, etc. with bigger developers too getting ready to foray into these areas.

Adds Ranjeev Kalia, DGM - sales & marketing, Ansal Buildwell, "Amusement parks add value to the real estate sector. These parks provide a complete entertainment package to people, leading to an increase in the footfalls of the commercial projects located within the complex. That's why more and more builders are introducing amusement parks in or adjacent to malls."

But, can amusement parks become one of the key drivers of the real estate growth in times to come? Says Kaushik Sengupta, VP - sales & marketing, Eros group, "In fact, amusement parks have already become a key driver in the growth of real estate and will reach even greater heights in times to come. With the opening of the economy and multinational companies entering into joint ventures with their Indian counterparts, real estate development is bound to gain with such collaborations."

Adds K P Singh, DGM-marketing, Pearls Infrastructure Projects, "Seeing the current development in the residential, commercial and retail real estate industry, the need for growth for amusement parks has risen and the increasing demand of the market definitely is leading to its growth. Because of the huge demand, developers are bound to build them. Amusement parks should receive due recognition for their enormous potential as an infrastructural facility for tourism. In terms of employment generation, the new parks are likely to create jobs. In short, it would be one of the major reasons for the growth of the real estate industry leading to the growth of the economy as a whole."

But, does an upcoming amusement park affect the real estate prices in the vicinity? "Definitely," says Madan citing the example of Disneyland, which after its development changed the face of real estate in Florida for times to come. "If such projects are built in suburbs, then they do give a fillip to the area. A similar trend was seen in Rohini, when after the announcement of our project, realty rates went up by 10-15 per cent," he says.

Adds Rakesh Gupta, managing director, RPS Group, "The prices of the surrounding real estate defintely shoots up with the commencement of the amusement parks. Additionally, the prices of surrounding areas rise thereby leading to an overall increase in the standard of living of people. Even for tourists, this place seems to be more entertaining considering the fact that it boasts of having good infrastructural facilities and service apartments."

So, what is the future of amusement parks in India? Is there any possibility of Disneyland ever setting shop in India, considering that it is scouting for a location in China at the moment? Says Madan, "The infrastructure in India is not ready to host Disneyland. Though we are moving towards it, it will be only three-five years down the line that we will be able to match the standards of the biggest amusement/theme park of the world."

Adds Arindam Kumar, general manager, marketing & retail sales, Mapsko, "The future is very bright and we would be in a position to witness many parks in the near future, provided improved technology and international specifications and standards are implemented to beat the existing competition prevailing in the country."



Wednesday, October 24, 2007

Maruthi Housing Announces Real Estate Information Services and Property Portal in Hosur

NewswireToday - /newswire/ - Bangalore, Karnataka, India, 10/23/2007 - Mr. Lakshman of Maruthi Housing, one of the oldest property developers based in Hosur, has announced real estate information services portal

Mr.Lakshman of Maruthi Housing, one of the oldest property developers based in Hosur, has announced a free real estate information services portal Visitors can get information about all properties available in Hosur either for sale, for lease or on rent.
Several happenings are going on in the real estate field in Hosur, and provides a neutral and biasless opinion about real estate developments in Hosur. Information about the proposed SEZ near Hosur, the proposed IT park at Hosur, etc can be known by people who want to have a first hand opinion about such happenings in the realty sector.
Green Fields is a villas project being developed by Maruthi Housing. "I want my customers and everybody else who have interest in my projects to have a first hand knowledge about the real estate scenario in Hosur. By educating my customers, I actually help them in making a responsible decision on investments rather than falling into hypes created by rumors", said Mr.Lakshman of Maruthi Housing.
For a novice investor, is a one stop portal to know everything he needs to know in order to educate himself about the real estate scenario and property trends in Hosur.
Apart from the real estate news in Hosur and property trend in Hosur, the portal also contains valuable information for investors like vaasthu, a quick guide to Hosur and places to visit in Hosur.

Biggest Property Festival Poperty 2007 - 25th - 28th Oct, MMRDA Grounds, Bandra Kurla Complex, Mumbai.

2007-10-23 13:12:32 - Mumbai, October 16, 2007: Maharashtra chamber of Housing industry ( MCHI) Property 2007 - the only official and largest real estate exhibition of India is back in Mumbai, to brighten up your festivities, offering home buyers a wide rage of properties & home loan options.

Property 2007 - 11th Real Estate & Housing finance exhibition will be held at Bandra Kurla Complex, MMRDA Grounds from 25th - 28th October.
Spread over an area of 25,000 sq. meters consisting of 3 multiple halls, Property 2007 will have leading Property Developers displayed their projects in Mumbai [ South, Central and Western Suburbs ] Thane, Navi Mumbai, Mira Road,

Vasai to Virar, Kalyan to Karjat, and across the country [ Pune , Bangalore, Goa, Hyderabad, Lucknow ] with international property developers from Dubai, Malaysia and other countries also participating. There is a special pavilion for budgets Properties and weekend / Holidays homes too .
Property 2007 will have a Special Exhibition Promotion Scheme being offered to visitors, who purchase properties during the four day event. Buyers stand a chane to win prizes like Life Style Apartments, Branded furniture, home Appliances, Gizmos etc.
Salient Features - MCHI's JOB FAIR
MCHI's 2nd Real Estate Job will offer aspiring professionals a smarter way to enter this industry by getting a first hand opportunity to meet with HR heads, from ‘some of India's leading real estate and township developers. Hence, a quick route towards achieving a rewarding career in the real estate industry.
Real Estate Job fair which will be held from October 27 - 28, 2007 at a Special Pavilion within the exhibition venue
For more information check


Ishaan strikes Rs 1,082-crore deal with K Raheja

MUMBAI: Ishaan Real Estate, the first India-focused real estate fund listed in the Alternative Investment Market (AIM) in London, has acquired 40% stake each in eight real estate projects promoted by K Raheja Corp, for Rs 1,082 crore (£133 million). The properties in which the fund has invested include three IT parks, two Inorbit shopping malls and one hotel property. The Ishaan-K Raheja Corp’s deal could be the first investment by an AIM-listed property fund in the Indian realty space.
Last November, Ishaan had raised about £180 million in its first phase from the AIM market of London Stock Exchange. The entire fund was to be invested in K Raheja’s properties in India. It may look at raising further funds from AIM market , and may look at investing other properties in India, said sources.
Ishaan picked up equity in K Raheja Corp’s Inorbit shopping mall in Hyderabad, Inorbit shopping mall and IT park in Pune, Mindspace IT park in Hyderabad, Mindspace IT park in Navi Mumbai, two Mindspace IT parks in Hyderabad, Commerzone IT park, hotel and retail development in Bangalore, and Viverea residential development at former Hindustan Spinning & Weaving Mills site in Mahalaxmi at Mumbai.
Confirming the development, Ishaan Real Estate chairman Ian Hendersen said: “Investment in the initial portfolio of assets is being completed largely according to a plan and the increased net asset value reflects the strong demand for our properties and the enormous potential of the Indian property market.”
Sources said Ishaan’s current portfolio in India covers a total of 15.4 million sq ft. Ishaan has also secured leasing agreements for over one million sq ft. Currently, in the AIM market , Ishaan shares are trading at around £104.
From the beginning, Ishaan Real Estate works in partnership with K Raheja Corp entities in the western and southern markets. It has also secured leasing agreements with two leading multinational companies for 7,66,000 sq ft of the projects in the initial portfolio.



IT firms make a beeline for industrial estates

But not everyone is happy with the trend

— Photo: R. Shivaji Rao

In contrast: The infrastructural shortfalls in industrial estates notwithstanding, they are becoming the preferred destinations for IT companies. A view of an IT complex in Guindy Industrial Estate.

CHENNAI: It’s an address that has been home to small manufacturing units for decades. Over the last five years, it has been making an appearance on the business cards of software professionals — Guindy and Ambattur industrial estates.

The glass and chrome structures of the Information Technology and IT-Enabled Services industry have started to occupy pockets of Chennai’s largest industrial estates. So far, most of the attention was focussed on Guindy, with its prime position near the airport and the IT highway. At least 25 acres are occupied by the IT industry there.

Ambattur has also started attracting IT clients in the last three years, thanks to its proximity to Anna Nagar and other residential areas. About 8 million square feet of IT office space is being created on the Estate. Clients include the who’s who of the software world — HCL, Alcatel, Verizon, HP, Hewitt and MindTree Consulting.


Industrial unit holders in the estates realise they are sitting on a goldmine. R. Ravi, an IT real estate promoter who has built four IT office buildings in Guindy and is constructing another in Ambattur, says he paid Rs.5 lakh per ground in 1993 and Rs.40 lakh per ground in 2004. “Today, they want at least Rs.1 to 1.5 crore per ground. There is no meaning for money here anymore,” he rues.

Apart from the large projects implemented by real estate developers, some unitholders are clubbing their land for joint development themselves. They can charge up to Rs.80 per square feet every month for furnished office space in Guindy. The rate in Ambattur is around Rs.60 per square foot.

With space running out, real estate promoters are eyeing the land held by government-owned institutions such as SIDCO, HTL or the Industries department.

But not everyone is happy about this mushrooming of IT in the estates. It exacerbates the shortage of skilled manpower, says K. Gopalakrishnan, president, Tamil Nadu Small and Tiny Industries Association (TANSTIA).

“For an ordinary tea boy or office peon, they are paying Rs.5,000 to 6,000 per month. Here, even skilled workers are getting only that much in the engineering units. So trained manpower is moving to do menial jobs,” he complained.

SIDCO managing director G. Santhanam says the big buildings and large workforce of the IT firms put heavy pressure on the estate infrastructure. However, large IT firms are willing to shell out money to fund infrastructure improvement on the estates.



Skyline Constructions and Housing Pvt. Ltd, expands its horizons

(PressZoom) - Skyline Constructions and Housing Pvt. Ltd, expands its horizons – Opens marketing & liasioning office in Dubai
Dubai, October 22nd, 2007: Skyline Constructions and Housing Pvt. Ltd., providers of luxury homes in India, today announced the launch of its marketing and liasioning office in Dubai.
Speaking about the need for an office in Dubai, Mr. Avinash Prabhu, MD, Skyline Constructions and Housing Pvt. Ltd., said “There is a significant increase in the number of NRIs in the Middle east region who are looking for investment opportunities in India and also many who want to return to India in the near future. This population believes that real estate is amongst the best investment options available to them but are skeptical about how to go about the formalities of buying property in India. Our office in Dubai hopes to address some of their apprehensions and provide them with an one stop solution to investing with Skyline.”
Addressing the media Mr Rahul Dravid said “Its nice to have been associated with Skyline Construction & Housing Pvt Ltd from Bangalore. I appreciate their quality and commitment towards customers and I have booked an apartment at Skyline Beverly Park .  Since we have many things in common, my association continues with Skyline.”
Skyline has a variety of product offerings in the price range of Rs. 7.5 million and upwards and are present in Bangalore, Cochin, Chennai, Mangalore and Mysore.
Indiareit Fund Advisors Pvt. Ltd. – a leading real estate venture capital fund, managing a corpus of more than USD 300 Million has invested in Skyline Constructions & Housing Pvt Ltd.  Indiareit has also committed a substantial amount for the future projects too.
“Skyline’s standing in the real-estate industry is unparalleled in terms of quality & consistent timely delivery. As one of the most trusted builders in South India, we have provided world-class luxury homes complying with international standards for our Indian customers. Now, with this office we have the capabilities in tapping the opportunities in this region.” added Mr. Avinash.
About Skyline Construction & Housing Pvt. Ltd.:
Skyline Construction & Housing Pvt. Ltd. is a 125 years old family owned enterprise. The foundation of the company began in the late 1800s, when coffee was the fast emerging cash-crop across the affluent Western Europe. In 1983, the family forayed into property development and within a very short span, developed into a leading and trusted player in Bangalore’s property segment. By 1988 Skyline had bevy of prestigious projects, most of them were considered golden landmarks. Over the years Skyline has completed over 60 projects, adding up to over four million square feet in residential, commercial and industrial space. Skyline Construction & Housing Pvt. Ltd ISO 9001 certified company and is recognized by KOAPA has its core strengths of superior planning, design, scheduled completion and financial transactions have lent it an unshakable credibility in providing the best possible dwelling spaces in the world.



RBI for ban on automatic FDI in realty

Worried over the substantial inflows of foreign funds into the real estate sector, the central bank has asked the government to allow FDI into the sector only after the clearance from Foreign Investment Promotion Board (FIPB).
At present, up to 100% FDI is allowed in realty projects on automatic route with certain conditions like a three-year lock-in on investments and minimum capitalisation of $5 million.
RBI wants real estate removed from the list of sectors where FDI can come in through the automatic route. RBI wants inflows routes like participatory notes (P-notes) and private equity contained. The market regulator Sebi is currently in the process of initiating moves to restrict investments coming in through P-notes.
Sources said the government, which has completely backed Sebi’s action to restrict P-note flows, may now not relent on other suggestions, especially restricting FDI. Also removing one sector from the automatic list, will be seen as a retrograde measure by foreign investors.
The reason for RBI’s concern stems from the fact that the sector witnessed a huge quantum of inflows in first four months of the current fiscal, surpassing the total inflow for the past two years. The FDI inflows in April-July, 2007, stood at $627 million, compared to $38 million in FY06 and $467 million in FY07.
The sector has witnessed substantial investor interest ever since FDI was allowed into the sector in 2005. There are also fears that some of the FDI could be ECB masquerading as FDI.
Since real estate companies are not allowed to raise external debt, there are reports of them using instruments like compulsory convertible debentures and offshore special purpose vehicles for borrowing abroad and then funnelling the funds to the parent in India as FDI.
This is not the first time, RBI has written to the government on the rising inflows into the sector. It had communicated its concern to the government last year as well. But, then it had not suggested any measures for a clamp down.



Tuesday, October 23, 2007

Developers focusing on NRIs to give sales a push

Paul Sharma, 46, a portfolio manager with a hedge fund in London, plans to apply for an overseas Indian citizenship that would let him buy real estate in one of the fastest appreciating real estate markets in Asia.

A building (left) in Bangalore with a helipad

A building (left) in Bangalore with a helipad

Sharma, who is partly of Indian origin, left India in 1968 and has since been living in the UK. And he is not eyeing India for sentimental reasons alone.

“I am basically from Himachal Pradesh and I would like to buy a property somewhere around my native place,” Sharma says. Though he has property in the UK, he isn’t buying more there.

“I think one of the issues in the UK real estate market is that it is really difficult to track the market. The last time there was a softening in the UK property market, it was for six years—from 1989 to 1995.”

Developers say that even as sales in the Indian real estate market are declining, demand from overseas and non-resident Indians (NRIs), especially in the luxury housing segment, is on an upswing.

The real estate sector in the country has been growing at 30-35% a year to touch $12 billion (Rs47,760 crore) this year, according to consultancy firm Ernst & Young’s report.

In the last six months or so, the real estate market has seen a drop of 60% in sales in the top cities as higher interest rates crimp buying. But demand from the overseas Indian community continues to be strong because it is not facing a similar sharp rate hike in those countries, where the real estate market is more mature and the returns less assured.

“There is a lot of interest in the Indian property market among the Indian diaspora, especially for high-end houses,” says Kunal Banerji, head, international marketing, Ansal API Ltd said.

NRIs account for 20-25% of the company’s sales in the premium housing segment, which consists of houses above the Rs45 lakh mark. The demand is mostly from the West Asia, UK and US regions.

“The housing markets in the US and even in West Asia have hit a low,” Banerji said. “So, buyers cannot expect a good return on investment there.”

In the US in particular, home prices are starting to soften sharply after a series of bad loans to home owners, who had a high risk profile and failed to repay their mortgages on time. Home values have fallen and are now worth less than they were a year ago.

On the other hand, the Indian property market offers a minimum of 15% return on investment a year, even though that is a climb down from a doubling of values seen two years ago.

“Anybody who bought property two years back has made a good return, so this could encourage NRI buyers,” Anshuman Magazine, chairman and managing director of real estate services provider CB Richard Ellis, South Asia, said.

Government policy has also made it easy for NRIs to buy a house in India. Under the present government regulations, overseas Indians can acquire residential property in India, rent it out, transfer or sell it. NRIs can also remit the rental income and capital investment made in Indian property abroad.

Developers are making a special effort to attrack NRI buyers. Ansal, for instance, plans to offer its prospective NRI buyers a special discount at a property exhibition, which it plans to organize in Dubai around the time of Diwali. The amount of discount to be offered has not yet been ­decided.

“We have never really tapped the NRI market. We feel we need to make a conscious effort to tap this market,” Banerji said. Interestingly, this discount is not yet being extended to the company’s domestic buyers.

Omaxe Ltd, another real estate company which predominantly builds high-end homes is seeing a lot of interest from NRIs in Europe and the US. “I can’t put a figure to the demand from NRIs but the response is certainly very positive,” Arvind Parikh, chief financial officer, Omaxe said.

Omaxe has its marketing representatives in Europe, US and West Asia either on its own or through tie-ups with the local real estate agents to tap the NRI market.

While property prices have increased in India by as much as 50-100% in the last three years, making it costlier for NRIs to buy houses, this price increase has not affected the demand from NRIs.

Even a fast appreciating rupee, which is hurting the value of the dollar, isn’t damping demand from the overseas Indians. Since the start of the year the dollar has fallen against the rupee and now fetches only about 39.5 to a dollar compared with about 44.6 in January.

“Yes, it is cheaper to buy homes abroad than in India but NRIs are still investing in the Indian property market with a long-term view,” Magazine said.


Caisse de Depot Property Unit May Invest C$1.6 Billion in India

Oct. 22 (Bloomberg) -- Caisse de Depot et Placement du Quebec, Canada's biggest pension-fund manager, plans to invest in Indian real estate for the first time and may spend up to C$1.6 billion ($1.7 billion) there in the next five years.

SITQ, the Caisse office-building unit that owns about C$10.6 billion worth of property, may have as much as 15 percent of its assets in India by 2012, Chief Executive Officer Paul Campbell said. SITQ now has no investments in the country.

The fund manager is moving into the world's second most populous nation to boost returns as rising borrowing costs make U.S. assets less attractive. Real estate development in the country is forecast to increase to $90 billion by 2015 from $12 billion in 2005, Moody's Investors Service said in a June report.

``We are really focused on India right now,'' Campbell said in an interview at Caisse headquarters in Montreal. ``This is the future, this is where the growth is going to be. We have no choice but to be there, or our returns over the next 20 years are going to lag.''

Campbell, who plans to travel to India later this month, said SITQ will probably focus on cities such as Mumbai and Hyderabad. The company will work with local partners since Indian law limits foreign control of real estate.

``Our business there will only be development because there is no stock,'' he said. ``We've been spending a lot of time in India this year, and there is nothing to buy.''

India Investors

SITQ posted a record return of 33.4 percent last year, almost double the unit's 10-year average of 17.3 percent. Campbell declined to discuss the company's 2007 performance.

The company is turning to India as buyout firms and venture capital investors are focusing on the country. ICICI Venture Funds Management Co., a unit of India's most valuable lender, unveiled plans last week to raise about $2 billion to create the country's biggest real estate fund.

ICICI Venture follows Housing Development Finance Corp., which raised $800 million in August and Sun-Apollo India Real Estate Fund LLC that got $630 million earlier this year. IL&FS Investment Managers Ltd. and Milestone Capital Partners are in the process of raising 10 billion rupees ($252 million) to invest in hotels, hospitals, warehouses, offices and houses.

``The real estate market is extremely buoyant,'' said Raja Seetharaman, associate director of markets at Jones Lang LaSalle Property Consultants (India) in Mumbai. ``There are at least 50 funds who are looking at India.''

SITQ's office tower holdings are split about evenly between Canada, the U.S. and European countries such as France and Germany. It owns the Paris headquarters of Areva SA, the world's largest maker of nuclear power plants, and New York City's 1515 Broadway, which houses the executive offices of U.S. media company Viacom Inc., owner of the MTV cable channel.

China Market

Besides India, SITQ may buy property in China and Russia. After investing $40 million last year in the Marbleton Property Fund, which focuses on Russia, the company is scouting for property in Shanghai and Beijing, Campbell said.

Closer to home, SITQ owns more than C$1 billion worth of buildings each in New York City and Washington. The company wants to buy more property in those cities as well as Boston and Seattle, while selling real estate in smaller markets such as Tampa, Houston and Denver, he said.

``You will find us increasing our exposure in Seattle, New York, Washington and Boston, which are really our four big markets, and selling elsewhere in the U.S.,'' he said. ``It's a lot easier if you don't have to think about 15 markets in a country of 300 million people. Big markets will go up and down, but there will generally be more liquidity there than anywhere else in the world.''

New York Market

Property returns in New York have been ``tremendous'' in recent years as rents picked up and vacancy rates dropped, Campbell said, declining to provide specific figures. SITQ has a partnership with SL Green Realty Corp., New York City's biggest office landlord.

``The market in midtown has seen the highest rate increases in any market anywhere in the last three years,'' Campbell said. ``Midtown Manhattan is really the financial center of the world and it will be for a long time to come.''

Campbell said he's optimistic real-estate returns will remain ``good'' even as interest rates rise for commercial mortgages. Rates for a 10-year commercial mortgage rose to more than 400 basis points above Treasuries since the end of July, after costing about 150 basis points in the first quarter, according to Bloomberg data.

More expensive debt may benefit SITQ since the company doesn't make purchases using leverage.

As leverage ``gets more difficult to get, it changes the universe for a lot of buyers,'' said Campbell. ``We are not leverage buyers, so if the debt markets are not there for our competition, we should be able to buy more cheaply.''



Special Economic Zones: Profits At Any Cost

By C.R. Bijoy

22 October, 2007

No other economic 'reform' in India has seen such a rapid expansion of militant protests and conflicts as Special Economic Zones (SEZs). Local inhabitants, particularly in Raigad (Maharashtra), Jhajjhar (Haryana) and Nandigram (West Bengal) cutting across caste, class and party affiliation rose up in revolt, with Nandigram seeing the most militant uprising leading to at least 14 deaths in police firing on 14 March 2007. These come in the wake of growing struggles against land acquisitions for industries met nonchalantly with deadly state terror, as in Kashipur, Lanjigarh and Kalingangar in Orissa, Singur in West Bengal or Bastar in Chattisgarh turning central India into a war torn zone.

The intensification of the expropriation of livelihood resources of the masses since the 1990s with the launch of the New Economic Policy, followed by what is popularly referred to as ‘globalisation’, which in fact is liberalization, privatization and globalization, facilitated by the troika – the World Bank, International Monetary Fund and World Trade Organisation – has seen an outburst of conflict between the state and the people. The rapid accumulation of capital leading to over-accumulation, the emergence of finance capital as the engine of change and control, and the materialization of the marauding global capital for accumulation through dispossession as a distinct outgrowth for control of resources and market are set to change the political discourse of geographies and her peoples.

SEZ that promises to usher in a new era of rapid growth and employment as never before evoke intense debate. The West Bengal government has put all SEZ's on hold. The plans for a large multi product SEZ in Kalinga Nagar has been dropped by the Orissa government. Rehabilitation policies are being revised by Punjab and Haryana. Maharashtra government is planning to reduce the size of the planned MahaMumbai SEZ. The Finance Ministry and the Reserve bank of India are unhappy with the SEZ policy on grounds that the policy offers excessive exemptions which will lead to revenue loss and spur real estate speculation. The Rural Development Ministry objected to the large-scale acquisition of agricultural land threatening spinning off further food insecurity. The IMF and the Asian Development Bank have criticised the tax exemptions being provided making SEZ ‘business-friendly’ rather than ‘market-friendly’, inherently violating market principles and market reform which they ardently promote.

A number of patch work remedies are proposed. Avoidance of acquisition of prime agricultural land, improvement in the compensation package offered in rehabilitation, offer of shares in the companies in the project to the displaced, compensation for agricultural labourers and sharecroppers besides land owners, ceiling on the area of SEZ's and no land acquisition by the state governments but instead the private developer to buy land at the market price directly from the land owners are some proposed remedies. The Parliamentary Committee on Commerce has demanded a freeze on new SEZs pending a fresh look at the policy, ban on use of irrigated crop land, a ceiling on the extent of land for SEZs and that too on lease rather than purchase. The Commerce Ministry meanwhile issued a new notification making SEZ developers responsible for the rehabilitation of displaced persons “as per the policies of the State government”. At the same time the Commerce Ministry has further liberalized exemption to now include contractors in SEZ units to claim exemptions to further promote SEZs while the Finance Ministry on the other hand is trying to tighten tax exemptions.

The Manufacturing of SEZ, the High-Speed Engine of Growth
However, what is noteworthy is that SEZ policy, followed by SEZ Act and Rules, emerged and established without much parliamentary debate over the last eight years across both the National Democratic Alliance and the United Progressive Alliance regimes. The SEZ has, as its predecessor, the Export Processing Zones (EPZs) which are ‘industrial zones with special incentives to attract foreign investment in which imported materials undergo some degree of processing before being exported again’ (The International Labour Organisation, 1998). EPZs are 'enclaves' dedicated to the promotion of export processing, isolated and insulated from the domestic economy with relaxed and liberal state controls in import, infrastructure and, in some cases, labour laws, simplified bureaucratic procedure, and favoured treatment to foreign and often domestic investors. The investors are to process all intermediate imports within the zone and to export without adversely affecting the domestic economy, attract foreign investment into and promote exports from the industrial and manufacturing sector within these initiatives that are not be extended beyond a specified geographical area, namely a ‘zone’.

EPZs emerged in response to the emergence of finance and global capital as the major economic players, the rapidly accumulating capital that seeks to move out to invest, the growing competition between developing nations to attract foreign direct investment and the thirst of capital to have an unfettered play in the pursuit of profit. Around 1967 Western capitalism was faced with a crisis of stagnation in growth, co-existing with high rates of inflation creating an economic downturn and slump along with the over-accumulation of capital. To snap out of this crisis, capitalism evolved a mechanism where the adjustment process heavily depended on lowering the cost of labour, raw materials and production by migration of capital to the peripheral regions of South Asia in the form of EPZ. This led to the decision of US firms to locate assembly operations in low-cost East Asian locations in the 1960s, particularly South Korea and Taiwan, where the US had particular political and strategic interest besides influence. Both these countries established their first EPZs in 1965 around the same time as India. Now an international phenomenon, EPZs increased from 176 across 47 countries in 1986 to over 3,000 across 116 countries by 2002. This does not include the enormous numbers of industrial parks, free zones and other areas which strongly resemble EPZ's but are not officially declared as such. Three countries in particular –Taiwan, South Korea and China – are often cited as major successes in using EPZ's as part of their industrialisation strategy.

South Korea under US occupation and Taiwan under the Kuomintang had gone through far-reaching land reforms freeing agricultural surpluses for use in industrialization with the virtual elimination of the feudal landlordism. EPZ formed a part of the larger domestic industrial and economic development of these countries through export-oriented strategy. Moreover the EPZs were not central to this strategy.

Taiwan's first export-processing zone was set-up in 1965 in Chien-Jiang, Kaohsiung City, followed by the opening of more zones managed by Taiwan's Export Processing Zones Administration. Average annual growth in exports was high at about 61 percent from 1967-79 but new investment had largely dried up by the early 1980s with infrastructure becoming redundant, duty-free arrangements improving elsewhere in Taiwan, and investment migrating elsewhere in the Asian region in search of greener pastures in terms of higher returns per dollar of investment and lower wage rates.

South Korea organized special industrial parks and export processing zones focused on the under-developed regions away from the high investment receiving Seoul. The industrial parks for export production and the export-promotion zones were initially expected to spearhead the development of capital-intensive heavy industries such as iron, steel and petrochemicals, but in the 1980s shifted focus to high-technology industries as computers, semiconductors, telecommunications and biotechnologies. But these zones waned in importance that by 1985 the SEZ manufactured good exports amounted to only 2.9 percent of the country's total manufacturing exports.

In the case of China, the situation was different with a socialist command economy, state ownership of land in urban areas and village commune ownership (collectivization) of land in the rural areas, and strong labour security. EPZs for earning much needed foreign exchange earnings commenced in the 1960s and SEZs beginning in 1979 with four SEZs, at Shenzhen, Shantou, Zhuhai, and Xiamen. Hainan Island was opened as the fifth SEZ in 1984 when ‘open door’ economic privileges were also offered to fourteen coastal cities. This opening up was carried out while insulating the economy of the remaining region of the country, as a strategy for regional development and that too of the poorer southern coastal areas. The strategy adopted was liberalization in a gradual manner with SEZ as the vanguard of market socialism. Unlike South Korea and Taiwan, SEZ in China was of central political and economic importance. In 1981, China clamped a moratorium on further SEZs. Large scale foreign investment came in from Hong Kong, Macao and Taiwan to tap geographical proximity and economic advantages as wage rates. The 1987 Land Administration Law provided the country's first property rights with provincial governments, municipalities and SEZ's also empowered to create their own land regulations as long as they did not contradict the national legislation.

By the 1990s these export promotion zones became import processing zones with net exports barely 16 percent of gross exports due to the high import component. Property markets emerged by 1991 with administrative allocation of land and rise of a speculative market in land rights. Only less than half the land transferred was actually developed. The ‘Zone fever’ spread with the provincial and local government declaring special zones that the number was estimated from 6000 to 8700 zones covering 15,000 square kilometers, often in violation of national or provincial regulations that more than 1000 such zones were cancelled by the national government. Uncontrolled speculative spin-offs forced the government to impose restrictions on the construction of hotels, restaurants and commercial buildings. Economic and Technical Development Zones (ETDZ) and National Industrial Development Zones for New and Advanced Technology (NIDZNAT), smaller high-technology oriented zones, sprung up close to the cities numbering 54 by 2006. 5 million hectares of arable land were transferred to such zones between 1986 and 1995. By 1997 the government imposed a blanket moratorium on conversion of land-use across the country followed by a law in 1998 restricting conversion of agricultural land. The Hainan Development Bank that invested heavily in such zones closed down bankrupt. Some of the biggest public sector corporations faced financial crises and bankruptcies. The preferential tax treatment offered to investors are being removed and made uniform across the country. In Shenzhen, the biggest of all SEZs, a third of the workers received less than minimum wages and about half the firms owed workers wage arrears. Runaway pollution problems cost the country more than US$200 billion a year, roughly 10 percent of China's gross domestic product and pollution-related deaths is estimated at 750,000 annually.

India set up the first special EPZ in Kandla, Gujarat, as early as in 1965. Santacruz Electronics Export Processing Zone (SEEPZ) followed becoming functional in 1973. Four more zones were set up by the Central government in 1984 at Kochi (Kerala), Chennai (Tamil Nadu), Falta (West Bengal), and Noida (Uttar Pradesh). Another one was set up in Visakhapattanam (Andhra Pradesh). SEEPZ in Mumbai for instance transformed the labour-intensive jewellery industry with its cottage industry status to a highly mechanized modern industry accounting for 55 percent of the Indian jewellery exports in 2002-03. The unit established by Tata Group in partnership with Burroughs, an American company, in 1977 in SEEPZ saw the beginning of India’s export in software and peripherals. Citibank established a 100 per cent foreign-owned, export-oriented, offshore software company in SEEPZ in 1985. The first private EPZ started operations in 1998 in Surat, Gujarat. All these eight EPZs, including the one at Surat, have since been converted to the new SEZ scheme.

Foreign Direct Investment (FDI) to the total investment in EPZ was a low at 16.7 percent. The share of EPZ in the country’s export was a mere 5 percent in 2004-05 accounting for 1 percent of employment in the factory sector and 0.32 percent of factory investment. All these indicate that the hype over EPZ has no basis as far as India is concerned.

EPZs were justified as necessary in order to overcome the often repeated shortcomings on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India. The Special Economic Zones (SEZs) Policy was announced in April 2000 offering more lucrative incentives/benefits. During the period 1 November 2000 to 9 February 2006 SEZs functioned under the provisions of the Foreign Trade Policy with all existing zones being converted into SEZs. Statutes to formalize the fiscal incentives became operational subsequently.

The Special Economic Zones Act, 2005, passed by Parliament without much parliamentary debate in May, 2005 receiving the Presidential assent on the 23 June, 2005 supported by SEZ Rules, came into effect on 10 February, 2006. The Left parties opposed any relaxation of labour laws and insisted on the removal of two clauses in the Bill pertaining to the Central government's power to modify or withdraw the application of any law to SEZ's, and a clause empowering the State governments to withdraw application of labour laws in SEZ's which were amended by the Commerce Minister through amendments in Parliament. The debate over SEZ Act came up only with people’s resistance that emerged subsequently.

Unraveling SEZ: A Boon or A Bane
The Act provides for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments for generating additional economic activity; promoting exports of goods and services, investment from domestic and foreign sources; creating employment opportunities; and developing infrastructure facilities. Single Window SEZ approval mechanism is provided through a 19 member inter-ministerial SEZ Board of Approval (BoA). The functioning of the SEZs is governed by a three tier administrative set up. The Board of Approval is the apex body. Each Zone has an Approval Committee dealing with approval of units in the SEZs and other related issues. Each Zone is headed by a Development Commissioner, who is ex-officio chairperson of the Approval Committee. Once approved the Central Government notifies the area of the SEZ and units are allowed to be set up in the SEZ.

A whole range of incentives and facilities are offered under the Act including duty free import/domestic procurement of goods; 100% Income Tax exemption on export income; exemption from minimum alternate tax, Central Sales Tax, Service Tax and State sales tax and other levies, customs/excise duties, and dividend distribution tax; external commercial borrowing up to US$500 million in a year is permitted without any maturity restriction; provision of standard factories/plots at low rents with extended lease period, and infrastructure and utilities. Most taxes and cesses are not applicable to goods procured from the Domestic Tariff Area. The fifteen year income tax holiday consists of total exemption for the first five years, 50% for the next five years, and 50% on reinvested export profits for the following five years, while Developers get a 10 year 100% tax exemption. Electricity taxes and duties are to be removed for electricity that is to be used within the processing area.

The main difference between an EPZ and SEZ is that the former is just an industrial enclave while the SEZ is an integrated township with fully developed infrastructure. In addition, state governments also enacted their own SEZ laws, primarily to cover state subjects.

All that is required to create an SEZ is simply finding land for it. Objectives of exports, employment, industrialization etc., are in effect deemed irrelevant to the declaration of the SEZ. It is however required that the unit would have a positive net foreign exchange earning within the first five years; the Developer confirms availability of space in the processing area for the unit, the applicant (a resident with a good financial record) undertakes to fulfill applicable environmental and pollution control norms; certain industries are to fulfill the respective sector-specific requirements; and units involving transfer of machinery from the Domestic Tariff Area (as per a clause added in October 2006) will not be approved. The State government is also to provide water, electricity and other services required by the developer. SEZ's includes restaurants, housing and apartments, gymnasiums, club houses, multiplexes, shopping arcades and retail space, schools, convention or business centres and even swimming pools. Hotels are allowed in all SEZ's except IT, gems and biotech SEZ's. The performance of the SEZ units is to be periodically monitored by the Approval Committee and units are liable for penal action under the provision of Foreign Trade (Development and Regulation) Act, in case of violation of the conditions of the approval.

366 SEZs were granted formal approvals granted as on August 2007 covering a land area of 48,968.9724hectares. Of this, 142 have been notified as on 24 August 2007 for an area of 18,933.83908 hectares. Further in-principle approvals have been granted for an additional 176 for 157,169.0131hectares. The Ministry of Commerce claims that these zones would attract investment of about Rs.100,000 crores including Foreign Direct Investment (FDI) of US$5-6 billion creating 500,000 jobs by end of 2007. Total investment expected by end 2009 is Rs 300,000 crores creating additional 40 lakh jobs, by December 2009.

The critique of SEZ has largely been around the issue of land acquisition and its fall out in terms of how much land, what kind of land and the compensation package; but SEZ portends much more than these. There is also the anticipation that SEZs will take the country to unprecedented growth levels. Speculations are rife with cynicism alongside that these are misplaced. But what is not being recognized nor debated is that SEZ, more than an ‘economic growth model’, is more of a ‘governance model’ that gives almost full rein to capital, and that too predatory capital.

The Transfer of Power: Abrogation of Democracy to Corporate Governance
SEZ's will be notified as ‘industrial townships’ under Article 243Q of the Constitution which exempts them from the provisions of Part IX of the Constitution that provides for elected local governments. Instead, an industrial township authority is constituted with the same powers and duties as a municipal body. There would be no democratic local governance institutions in SEZs. The developer is to construct the zone and also be effectively in control of the local governance in terms of provision of infrastructure and basic services such as education, health, transportation and so on. The Development Commissioner, along with the Developer, effectively replaces local democratic institutions centralizing powers with every arm of the state such as public services, police, judiciary and local governance coming under the control of the Development Commissioner, the Developer and the Central government. This is evident from the three tier governance system in place.

Full powers are bestowed by Section 49 of the SEZ Act on the Central government to modify or repeal any Central law in its application to SEZs (with the exception of labour law), a power normally vested in the parliament. This exception is ‘relating to trade unions, industrial and labour disputes, welfare of labour including conditions of work, provident funds, employers’ liability, workmen's compensation, invalidity and old age pensions and maternity benefits applicable in any Special Economic Zones.’ However, this exception is virtually nullified by the Rules that require that State governments declare SEZ's to be public utility services and delegate the powers of the Labour Commissioner to the Development Commissioner whose specified mandate is for ‘speedy development’ of the SEZ, especially the promotion of exports. Moreover, the SEZ Act only bars the Central government from relaxing labour laws but not the States. These include exemptions from the Minimum Wages Act, Contract Labour (Regulation and Abolition) Act, Employees State Insurance Scheme, requirements for posting information, and so on.
The Development Commissioner in most States is the authority for most clearances and for labour rights. The judicial and policing functions are altered with ‘No investigation,
search or seizure shall be carried out in a Special Economic Zone by any agency or officer’ without the permission of the Development Commissioner under Section 22 of the Act with the exception being only in the case of ‘notified offences’, notified by the Central government under section 21 of the Act, which are also to be intimated to the Development Commissioner. Special courts are provided under the Act in SEZ's for both civil and criminal matters who alone can try and adjudicate any civil dispute within an SEZ or any trial of a ‘notified offence’. Ordinary criminal trials of non-notified offences can take place in ordinary courts, but investigation of such crimes is not possible without the authorization of the Development Commissioner. Appeals from the special courts will lie directly with the High Court of the State. These provisions produce a system of a separate judiciary for the SEZ with the Development Commissioner playing a key role. The net effect is the transfer of power over resources, governance and people within the Zone to big business and investment capital, and the creation of a new economic, geographical and political reality.

The SEZ Act itself insists that all those employed or residing in the Zone is to have an identity card with entry restricted to only ‘authorized persons’ into the processing area. The Zone will effectively be a secured enclosure, fenced off by boundary wall or wire mesh of a minimum height of two meters forty centimeters with top sixty centimeters being barbed wire fencing with mild steel angle and with specified entry and exit points. This clause was replaced in March 2007, with a requirement that the processing area and an FTWZ (Free Trade Warehousing Zones) shall be ‘fully secured with measures approved by the Board of Approval.’

Economic Parasitism
Unlike India, the so-called ‘success’ stories of Taiwan, South Korea and China have two important features namely, (a) in all these countries the EPZs/SEZs followed a thorough land reforms that effectively eliminated the feudal landlordism which in the case of India remain cursory and (b) EPZs/SEZs formed part of a national economic and development strategy of the countries as a whole whereas India expects the SEZs to be the engine of rapid transformation of the national economy and development. That these ‘successes’ came with its own baggage of acute problems as enumerated earlier is another fact. Together, what it portends is further economic and political crisis besides the social and environmental fallouts.

SEZs are expected to bring in a flood of investment, especially FDI due to the unbridled incentives. Rs.3,000 crores is estimated by the Ministry of Commerce to be invested in the SEZs by the end of the fiscal year 2006 – 2007. In contrast, India received an FDI of Rs. 1.06 lakh crores in 2006 (Union Budget 2007-2008). FDI also has shown a preference to acquire existing companies or invest in infrastructure rather than greenfield export-oriented projects. The projected large FDI into SEZs is skeptically viewed as chasing a mirage. FDI as a percentage of total investment in EPZ's varied in Asia from a high 90% in Malaysia and 85% in Taiwan to a low of 16.7% in, significantly, India. Once the infrastructure is in place, production and exports increases initially following initial large investments. Later, there is a ‘leveling off’ of foreign investment and exports. The cost of labour and general costs tend to rise subsequently driven by increased cost of living and services.

The exports are offset with high import component lowering net exports induced also by the reduction of duties and tariffs on imports. The importance of Zone to export promotion then declines leading to the inevitable reappraisal and reintegration into the domestic economy. In addition, under WTO the incentives provided in SEZs are treated as ‘export subsidies’ which lead to countervailing duties by the importing countries under the WTO Agreement on Subsidies and Countervailing Measures. Already India is subject to the largest number of countervailing measures for its exports from EPZs (and now SEZs) than any other country. And SEZ exports currently ranges between 7% to 9% of India's total exports only, which falls to half if one were to account for the invisibles.

The incentives dished out to SEZs will create a tilted playing field between SEZ and non-SEZ investors. Given the incentives, SEZs, rather than start new initiatives, would simply attract existing enterprises to relocate themselves from the domestic economy to SEZs to avail of the incentives in order to maximize profits. This would amount to a mere shift in existing investment from the outside to the SEZs rather than new investments. Of the SEZs notified, IT/ITES constituted the bulk of them (66%) with single sector IT SEZ forming the majority. This is followed by Pharma/chemicals (7%) and Textiles/Apparel/Wool (4%). It looks that the relocation process is in effective swing as can be noticed by the exceptional number in the IT sector. The government in November 2006 itself decided to stop further in-principle approval of IT SEZs. The Software Technology Parks Initiative, the main scheme is also scheduled to end by 2009. The majority of SEZ investment is from the private sector. Real estate sector applicants form the majority in the private sector followed by IT companies forming nearly three quarters of non-public sector approvals. IT and multi product SEZ's, form the bulk of all applications by real estate companies. Real estate development rather than export generation is a factor to reckon with.

Further, with strains emerging, the removal of the imposition of duties on sales of products in the Domestic Tariff Area would result in the entry of SEZ units into production for the domestic market with its damaging effect on the competitiveness of existing production outside SEZs for the domestic market. This portends closures of industries and resultant unemployment outside the SEZs.

With favored position and pampering along with relaxation of regulatory mechanism, SEZs could become the hub of economic offenses. For instance, the 33rd Report of the Parliamentary Standing Committee on Finance found that show cause notices had been issued for more than Rs. 3,400 crores between 2002-2003 and 2004-2005 for fraud in export oriented units (EOU's) and some other export schemes.

Redrawing Land Maps
The establishment of SEZs, and a large number of them, requires substantial land to be acquired or purchased by developers. About 2 lakh hectares are required for establishing the approved and in-principle approved SEZs. The notorious Land Acquisition Act 1894 has been used to acquire lands in many cases whether the developer is a public sector or private sector, at a price well below market prices not taking the dependants of the land as an affected party in the acquisition normally. Land can be acquired under this Act only for ‘public purpose’ which are defined in Section 3(f) of the Land Acquisition Act and does not include companies. However, the judiciary has deftly reinterpreted the law to say that once the government has acquired a land, the government can sell, dispose or transfer rights of its land at will to whomsoever it wants to, irrespective of the original intent of acquisition. In effect, land acquisition by the State has made a decisive shift from ‘public purpose’ to also ‘private profit’. But with militant resistance, the developer purchasing land directly from the owner without the mediation of the state is a proposed remedy.

Acquisition of prime agricultural land became a major issue with all its serious implication which is now attempted to be restricted with restriction of acquisition on single crop agricultural land alone beside waste and barren land. Double cropped agricultural land, if necessary, is to be limited to 10 percent of the total land. More over such areas have powerful farming interests and is at the heart of agricultural economies. That the category of waste and barren land most often constitute survival resource base for the most marginalized in vast numbers is ignored. Land acquisitions, or alternatively land purchases, are therefore to increasingly focus on the marginal and tribal areas. Official rehabilitation schemes rarely work satisfactorily, be it by the state or the private sector. However, holding the state responsible is easier than the private purchaser in a democracy. The proposition to take the land on lease is also floated to ostensibly ensure permanent income to the oustees.

The lands are invariably located in close proximity to raw materials, urban centers and transportation facilities. At least 35 percent of the acquired land is to be used as processing area while the rest could be for residential, and recreational facilities. The acquisition bypasses and belittles local self-governance institutions of the panchayats. The SEZs moreover become the nodal points for speculation fuelling large scale real estate activities around the Zones with the emergence of powerful land mafias in connivance with authorities to dispossess people of their lands in the surrounding areas driving land prices up within SEZs and around it. The attraction to SEZs is likely to vanish in due course defeating the main attraction of low cost SEZ. Almost as though recognizing this reality, the Reserve Bank of India has asked the banks to treat SEZ lending as real estate business and not infrastructure.

Promoting Disparities and False Hopes
SEZs will aggravate regional disparities. Over three-quarters of all approved SEZs are located in six States – Andhra Pradesh, Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu. Maharashtra and Andhra Pradesh alone account for more than a third of all approvals. These states are all relatively well developed States with high industrial capacity. These are also highly urbanized with the partial exception of Maharashtra. Obviously, investment is channelised to areas of high levels of industry and investment which further propels these states to showcase their ‘success’ further.

Employment to the tune of 5 lakhs to as much as 40 lakhs is bandied about officially by the Ministry of Commerce. As indicated earlier, relocation of industries from outside to the SEZs to take advantage of the relative advantage would simply mean mostly the translocation or migration of existing labour than generation of new employment. In addition, the likely negative impact of SEZs on manufacturing outside the SEZs could spell a decline in employment outside. Between 1998 and 2003, while investments grew by 73%, employment growth showed only a 13.7% rise in EPZs. Net increase in employment, considering the growth in employment in SEZs, would therefore be actually far low.

The working conditions, in the context of the relaxed application of labour laws, could continue the turnover rate of 30% or 40% seen in the erstwhile EPZs. Labour abuse and violence in EPZs has led to consumer movements in the US for instance, demanding multinationals to respect labour rights. Workers are told that they could not organise trade unions because of the ‘zone’ status which are declared public utility services, a designation under the Industrial Disputes Act, 1947. Labour inspectors are reportedly issued orders by the Commerce Ministry not to visit the zones without prior permission from the Ministry. There is also the unemployment caused due to land acquisition or change in land use in and outside SEZ. The long term impact such as impact of pollution and change in land use in the surrounding areas could be colossal if one is to go by past experience.

The loss to the government on account of SEZ is incredible. In 2004 – 2005, the government already incurred a loss of Rs. 41,000 crores – a staggering 72% of customs revenues and 23% of total indirect tax revenue of any kind. The Finance Ministry estimates that Rs. 1.75 lakh crores will be lost over the next five years.

These capital driven enclaves have all the bearings of impending economic crisis and the concomitant political and legal turmoil. SEZs are not simply about land-based displacement-inducing projects driven by the nexus of capital and state. It is also about the replacement of democracy by governance by corporations, the new form of governance by capital supplanting people. It is also about growth with inequity, and social and environmental injustice. It is also about democratization of control over and governance of resources by people in response, as a matter of right and struggle.


1. Aggarwal, Aradhna. Revisiting the Policy Debate, Economic and Political Weekly, November 4, 2006, pp. 4533-4536
2. Gopalakrishnan, Shankar. Negative Aspects of Special Economic Zones in China, Economic and Political Weekly, April 28, 2007, pp.1492-1494.