News & Views on Indian Real Estate

Thursday, February 28, 2008

SEZ sector boosts economic growth

The real estate sector in India is on a high growth path. Several government initiatives have contributed to this high-growth environment - liberalization of foreign direct investment norms in real estate in 2005, introduction of the SEZ Act, and allowing private equity funds into real estate.

The Government of India (GOI) first launched the concept of SEZ in the EXIM Policy 2000 to boost the country’s exports and attract FDI. International experience shows that SEZs are pockets of manufacturing excellence which apart from driving export growth and attracting FDI are also contributing tremendously to generation of employment and thereby contributing significantly to the economic growth of the country.

In India, 25% of a SEZ is used for industrial and business purposes, and 75% for real estate and commercial complexes. SEZs ensure high growth and remove regional imbalances as the government can develop them according to the economic and regional requirements.

India's SEZs seem to be the new destination for real estate investors. Of the around 150 approved SEZs, 85 are in the IT-IT’S sector and 10-15 in the electronics area. Real estate developers are developing nearly 130 SEZs, constituting 50 per cent of the total SEZ area. However, the manufacturing and engineering sector has a mere 17 SEZs in the approved category in Haryana, Karnataka, Punjab, Maharashtra, Andhra and Gujarat.

According to some, “Real estate is a booming sector and valuations are slated to rise multifold, which is another reason for the increased interest in SEZs”.

Private Equity (PE) firms are looking for buying a minimum 10 per cent stake in real estate firms developing Special Economic Zones (SEZs). Many PE companies have initiated talks with real estate companies for opportunities in this sector. Not only global PE firms like Sachs, Deutsche Bank, Blackstone, Lehman Brothers and others, but also some of the Indian PE companies like Kshitij Real Estate Funds (a Pantaloon Group company) and HDFC Realty are also interested in buying stakes in companies developing SEZs.

Ever since the government decided to allow companies to set up SEZs, India Inc has rushed in with big plans for projects across the country. Corporate giants such as Tata Consultancy Services, Reliance Industries (Mukesh Ambani group), Reliance Anil Ambani Group, DLF Ltd., Unitech Group, Parsvnath Developers and Videocon Group are all into developing SEZs.

Foreign direct investment continues to play an important role. India has the opportunity to become a manufacturing hub for textiles, automobiles, steel, metals, petroleum products etc. for the world market. In 2005, FDI was estimated at $ 4 billion, without counting reinvested earnings and other capital. The ministry of commerce estimates an investment of Rs 1 trillion in these SEZs in the next few years and employment generation of 5, 00,000.

Puneet said...

You r right, in future it will grow. Already lots of people & corporates invested into this.

Himanshu said...

I am not sure about the whole SEZ concept. Alright jobs would be created, but do you think it will have a trickle down effect? On the contrary I agree it's a great investment opportunity in case you already have a fortune!

Barun Varma said...

SEZ is a fantastic concept. There is a IT Holiday for 15 yrs, no applicability of indirect taxes. Therefroe no Govt dealing, no record keeping for taxes, no assessment hassels, even constrction material is duty free, a ready made & secure infrastructure is made available to industry to concentrate on its main activities. Single window clearance.

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