Township plans for prosperity

prepares a guide of sorts for those who want to know everything about the concept of walk-to-work townships.

An urban influx and the growing size of a prosperous middle class are provoking inflated aspirations and the way things are going, there is a chance that the way the current as well as future generations live is going to change dramatically.

Imagine a shift from the apartment cluster culture of today where shopping options aren't exactly in the neighbourhood, and the workplace, medical facilities and schools could be as much as an hour away; to a culture where you and your wife walk to work, your children at most cycle to school, and retail spaces are just a stone's throw away. Welcome to the world of integrated townships.

Er, did you say, integrated township?

To put it simply, an integrated township is a community living platform where the concept of walk-to-work can be implemented, everything that families needs is in close proximity from their homes "" shopping malls, entertainment options, hotels, hospitals, schools, offices and what have you.

William Rattazzi, CEO-Residential, EmaarMGF Land, explains it as a place designed to create a lifestyle, taking into consideration all the needs of the end-user. And yes, they have to be sustainable "" not just environmentally but also with respect to the fabric of the society. "They are the way for the future," he adds.

Deepak Krishnappa, chairman and CEO of MetroCorp, integrates the concept of work, live and play in the many integrated townships they are planning. So we can expect well planned developments with wide roads, no traffic jams, lots of green spaces, parks, entertainment centres "" overall "a good quality habitat", as Sunil Agarwal, CEO, South Asia Real Estate (SARE), puts it. SARE, as an international fund, is investing exclusively in integrated townships across India.

There are benefits too. "The infrastructure is under the developers' control," explains Anuj Puri, chairman and country head, JLL-Meghraj, adding that the developer can plan and use the FSI better, and long-term maintenance is a possibility.

In the past we've had townships such as Gurgaon or even Navi Mumbai where multiple developers had a stake. The new concept of integrated townships, however, is more about a single developer taking over a large tract of land.

Integrated townships are usually developed and sold in phases, which is why one doesn't need to incur all the expenditure in one go, says Pankaj Pal, president, sales and marketing, Vatika Group.

Everything in an integrated township needs to be self-sustainable. Many companies across India are planning such large scale, integrated townships, using IT as their peg.

And it is not only in tier-I cities "" developers are equally bullish on tier-II cities, and the reason is pretty obvious: availability of land on a larger scale and at a lower price.

An integrated township project, says Pal, needs to have a critical mass (minimum number of people) to be successful. A hospital cannot be sustainable if there aren't enough people, neither can a mall sustain itself.

Some developers work on the equilibrium model where the amenities provided cater to just the population inside. Others provide amenities which can cater to a much larger population, adding value to the neighbouring areas as well.

Ideal size and distance from a city
The size of integrated townships can vary from as small as only 40 acres to some as large as 3,000 acres or more. It all depends on a developer's ability to buy land and the rate at which he gets it. Of course, like any other real estate project, the model works better if land cost is rational.

Also, if the land cost is too high, there might be a situation where the cost of the end-product might push out middle-class buyers.

Distance from cities
Krishnappa explains that their townships, which will be known as MetroCorp Knowledge City, will be positioned about 7-8 kilometres from tier-II cities and about 20-odd kilometers from tier-I cities. "The cost of land about 7-8 km from a tier-II is about the same as land 20 km from a tier-I," he says.

Puri feels that people who are undertaking projects at some distance (say 30-40 km away) might have to struggle. Selling residential and office space so far away could be an issue.

The townships SARE is planning would be about 6-10 kilometres away from the cities. Agarwal feels that a larger scale would justify distance, but they would need to generate enough employment to be sustainable.

Government speak
States are beginning to realise the potential of integrated townships. Maharashtra and Karnataka are front runners, both having formed a policy on integrated townships. There is news that Gujarat and Rajasthan might soon have such a policy.

According to the policy, the minimum area needs to be 100 acres in both Maharashtra and Karnataka. In Maharashtra, the land conversion will be automatic, there will be a 50 per cent waiver on stamp duty, extra FSI, no height restriction and guaranteed water and power. Here, developers can even buy agricultural land (minimum 100 acres though) and apply.

What has enthused developers and investors alike is the fact that 100 per cent FDI is allowed by the centre in integrated townships. Some of the guidelines are as below:

The foreign company needs to be registered as an Indian company under the Companies Act 1956 and will henceforth be allowed to take up land assembly and its development as a part of an integrated township development.

The core business of the company seeking to make investments should be integrated township development.

The minimum area to be developed by such a company should be 100 acres for which norms and standards are to be followed as per local bylaws/ rules.

The minimum capitalisation norm shall be $10 million for a wholly-owned subsidiary and $5 million for joint ventures with Indian partners.

A minimum lock-in period of three years from completion of minimum capitalisation shall apply before repatriation of original investment is permitted.

A minimum of 50 per cent of the integrated project development must be completed within a period of five years from the date of possession of the first piece of land.

On the ground
A look at the scene in both tier-I and tier-II towns is enough to understand the enthusiasm for integrated township projects. Large developers like Unitech, DLF and Hiranandani are building self-sufficient integrated townships and so are some smaller builders. Everyone is acquiring land all the time.

In Maharashtra, the first integrated township project to get all approvals under the new Special Township Policy is the Amanora Park Town project which will cover 325 acres in Hadaksar, Pune. Another developer in Pune is waiting for approvals. Magarpatta in Pune is an older township project which has been on for several years and is being developed in phases.

There are some large townships planned in Ahmedabad as well. The Adani Group has partnered Ahmedabad-based Ashima Group's Saumya Constructions to develop a 200 hectare integrated township called Shantigram.

Many mega integrated townships are on the anvil in and around Bangalore. The Prestige Group is planning a full-fledged township in Whitefield; Ceylinco Shriram will be investing approximately Rs 120 crore for an integrated township on 100 acres of land along the Old Madras Road, and Adarsh Group too is looking for land on the Outer Ring Road. (See box for many more.)

Foreign investments
But the bigger story is the international investments coming in. Of course, most developers do not want to name funds investing in their projects (due to understandable reasons), but they do agree that they have been speaking to multiple funds.

Bangalore-based MetroCorp is planning a total of 20 integrated townships across the country. They have a partnership with Singaporean company Jurong for concept, design and project management. "We already have a 6,000 acre land bank with us, in both tier-I and tier-II cities. Each township will be a minimum of 300 acres," says Krishnappa. They have been speaking to international realty funds for investing in their project at the SPV level. Four funds are already on board.

Krishnappa feels that funds are interested because their partner, Jurong, has a proven track record when it comes to executing large township projects. "That is what the funds have realised," he says, adding "the ground reality in India is execution." MetroCorp will spend about Rs 5,000-6,000 crore on each, over 5-6 years.

Emaar-MGF is another big player. They recently launched their Mohali Hills integrated township project which is going to be spread over 3,000 acres. Rattazzi feels that India has the opportunity to learn from different planning methodologies adopted by different developers in the US or Europe and create something sustainable.

International fund South Asia Real Estate is one player in the market that is investing specifically in integrated townships. Agarwal informs of projects with locals partners in Raipur, Indore, Panvel, Manesar and Ghaziabad. In these five projects, they have already invested about $330 million in equity along with their local partners. They are in the process of planning projects in Pune, Hyderabad, Bangalore and Lucknow, among other cities.

The Vatika Group is working on three integrated township projects "" 800 acre projects in Jaipur and Gurgaon and a 180 acre one in Ambala. They are in talks with a major American fund for $200 million funding for these.

Return on investments
Lured by the lucrative returns on real estate investments, several foreign majors like the Indonesia-based Salim Group and the Singapore-based Keppel Land Group are making mega-dollar investments. Capital Land, GE, GIC, Israeli Fishman Group, Vornado as well as many hedge funds are investing in different Indian states.

"Nearly 30-35 per cent IRR is what we believe we can get today," says Agarwal of SARE. There is a possibility to get 20-25 per cent return on investments, unlevered and about 35-40 per cent with leverage, today. "China is offering that kind of returns and even Singapore, Malaysia and Indonesia are attracting a lot of investments now. We need to be competitive," explains Agarwal.

INTEGRATED TOWNSHIPS

ICICI Venture and Tishman Speyer's 50:50 JV, TSI Ventures, in consortium with Nagarjuna Constructions, are developing a 400 acre integrated township at Tellapur, Hyderabad. The township will be a mix of commercial and residential complexes as well as recreational spaces. When completed, the development will be home to over 30,000 people and will provide office space that will generate over 35,000 jobs.

The Ozone Group is planning an integrated township on 43 acres in Chennai for Rs 300 crore. According to a press release, the deal is backed by HDFC and Reliance.

Malaysian property developer Sunway City Berhad has partnered with Hyderabad based Opus Developers & Builders on a Rs 800 crore township on 14 hectares of land near Hitec City in Hyderabad.

Ansal Properties and Infrastructure has signed an agreement with Abu Dhabi-based investment firm Noor Capital and its advisor, India Realty, for setting up two township projects in Uttar Pradesh, in Agra and Ghaziabad. Ansal Housing is to develop a 100-acre township in Rewari, Haryana.

Private equity investor GE Capital signed a deal worth Rs 250 crore with Paranjape Schemes for developing an integrated township project in Pune.

Fire Capital Fund Mauritius, a global venture capital fund, plans to invest up to $250 million to develop integrated townships in 10 cities. The fund made its first investment in the Indore-based M Jhaveri Group in the 137-acre upcoming township Silver Springs being developed by it.

DLF is making a foray into Kolkata and is planning expansion into cities like Pune, Bangalore, Chennai and Hyderabad. The company recently launched a Rs 600 crore, 26.3 acre integrated township project in Hyderabad. DLF has entered into an agreement with the Kolkata Metropolitan Development Authority (KMDA) to build a new township in Dankuni, Hooghly district, West Bengal with an investment of Rs 33,000 crore. This would make the Dankuni township the largest public-private-partnership (PPP) project in the country.

Parsvnath Developers has announced the Parsvnath City in Dharuhera, Haryana, spread over 114 acres. The township will be close to National Highway-8 and strategically situated just 25 km from Gurgaon border.

Larsen & Toubro and Arun Excello will do a township in Maraimalai Nagar, Chennai. The project, Estancia, will be set up on 78 acres at a cost of Rs 1,500 crore.