Increase in processing area to hit developers

The government's decision to reserve half of the land belonging to the Special Economic Zones (SEZs) for core sector activities, could put a spanner in the SEZ developers' plans.

The SEZ developers now will have to woo 15 per cent more investments from the industry in the core activities which could up their gestation period.

The empowered group of ministers (EGoM) yesterday had increased the minimum processing area from 35 per cent to 50 per cent to cover all existing and proposed zones. This is applicable to both single product and multi product SEZs.

Analysts believe real estate operations are more profitable and easier than finding sector specific companies in an SEZ. "If a company was planning an SEZ on 1,000 acres, earlier it could have roped in the concerned firms in 350 acres land as per the 35 per cent processing area norm and used 650 acres for real estate development. Now it has to be sure that half of its SEZ area comprises of core activity units. This would affect the project dynamics," said a Bangalore-based realty consultant.

Now, the SEZ developers have to modify their plans according to new norms and submit them to the government. This has to be done irrespective of the stages of SEZ approvals in which they find themselves presently.

"We will have to go back to the drawing board and reformulate and redraw the plans again. Other than that, it will not affect us," said Sunil Gupta, CEO, Omaxe, which is planning a 6,074 hectares SEZ in Alwar, Rajasthan.

The real estate watchers also believe that 50:50 norm is not very viable, especially in SEZs located in non-urban areas. The developers would have to ensure the social infrastructure needs of the people who work in the SEZs.

"You cannot set up SEZs without social infrastructure. The core economic operations per se are not very profitable and hence the developers recover the investment from the social infrastructure. If they get less land for this, the whole project will become unviable," said Ajith Krishnan, partner, Ernst and Young.

Krishnan believes that after the new norms, the developers would find the projects worthwhile only if they have the financial muscle to hold on to the land till the new occupants come in core areas.

Ankur Shrivastav, managing director of property consultancy DTZ, said, "The good thing about the new norm is that it would bring down the speculation in the real estate component of SEZs. On the flip side, the developers have to bring in more companies resulting in stretching out the gestation period. It will take 4 to 5 years to do that now."