New FTP: Why SEZ reforms are a boon for real estate and IT

In a landmark move that will have wide-ranging implications for commercial real estate in India, the Government has done away with the mandatory requirement of 10 hectares of minimum land area for setting up a IT/ITES SEZ. With immediate effect, the minimum built-up area requirements to be met by SEZ developers will be 100,000 square meters for the seven major cities, 50,000 square meters for Category B cities and only 25,000 square meters for the remaining cities.

Small IT companies gain from lower land area

The first and most encouraging impact of these amendments to the previous requirements, which were a major hurdle, is that many more IT companies will now be able to launch their own SEZs. Previously, only the largest IT players could have their own IT SEZs given the capital required to buy 25 acres land. Developers will now be able to aggregate smaller contiguous land parcels and turn them into SEZs. In cities such as Chennai and Bangalore (where the FSI for IT Parks is as high as 3.25-3.75, an SEZ development can now be developed on a land parcel as small as 7 acres.)

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Mixed use to help real estate developers

Further, some IT SEZ developers who have already met the 100,000 square meter built-up area criteria will now convert the balance land for residential use, giving the mixed-use edge while also making the formation of many more walk-to-work residential projects possible. Real estate developers will now be able to divide their land holdings and allocate smaller parts to IT companies to construct their own IT SEZs.

[caption id=“attachment_712268” align=“alignleft” width=“380”] Developers will now be able to aggregate smaller contiguous land parcels and turn them into SEZs[/caption]

Exit becomes easier

Another extremely important result of this ruling is that it will now become easier to exit from SEZs given that transfer of ownership of SEZ units - including sale - has now been allowed. Moreover, Real Estate Private Equity Funds with foreign capital will now be able to do more smaller deals, and this is bound to bring in more FDI into the sector.

Smaller cities could gain

The infusion of FDI into the real estate markets of smaller cities can also become a critical factor in IT/ITES companies deciding to move into these cities - with an obvious positive impact on their local economies and therefore the growth of their real estate markets across all segments.