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Most real-estate developers are converting their commercial ventures like IT parks and SEZs into residential projects
The real-estate market is witnessing a new trend. Most information technology parks and commercial office projects are now being converted into residential projects, as most developers are not feeling confident over the projected revival in the commercial segment.
“In the commercial segment, there is a huge oversupply and absorption is very low in the market. A lot of commercial and IT park spaces are now being converted into residential projects. Approximately two million sq ft of commercial projects have recently been converted into residential projects in the island city (mainly at Lower Parel). You can witness many such similar trends in the real-estate market now,” said Pankaj Kapoor, founder, Liases Foras.
Orbit Corporation Ltd, a Mumbai-based developer, has converted its IT park project at Andheri, a Mumbai suburb, into a residential project called ‘Orbit Residency Park’. It will be constructing one bedroom, hall & kitchen (BHK) apartments of approximately 600 sq ft–700 sq ft, one-and-a-half BHK of approximately 700 sq ft–800 sq ft, two BHK of approximately 900 sq ft–985 sq ft, two-and-a-half BHK of approximately 1,000 sq ft, three BHK of approximately 1,300 sq ft-1,400 sq ft and three-and-a- half BHK of approximately 1,350 sq ft-1,450 sq ft.
Real estate giants like DLF and Unitech have also discontinued many commercial development projects and are converting these ventures into residential projects. DLF has recently de-notified four Special Economic Zones (SEZs), as there is a lack of demand in the commercial space.
“The commercial sector is growing in supply but not in off-take. You can see an over-supply in office space and SEZs. It will still take six months to one year for the absorption to come back. So we have changed our IT park project into a residential project,” said Pujit Aggarwal, managing director and chief executive officer, Orbit Corp.
According to industry sources, Bombay Dyeing’s Dadar and Worli mills, Prakash Cotton Mills’ Lower Parel project and the proposed SEZ by K Raheja Corp in Navi Mumbai are among the commercial projects which are being converted into residential projects.
Bombay Dyeing’s mill lands at Dadar and Worli (at central Mumbai) were supposed to be utilised for two commercial and IT towers earlier. But the company is now converting these lands into residential projects. Moneylife contacted Bombay Dyeing on this development, but received no answer. K Raheja Corp had also planned an IT/ITes project at Navi Mumbai earlier.
“We have still not taken a final call. But we are mostly looking at residential project development,” said Ravinder Jalan, chairman, Prakash Cotton Mills.
During the boom time of 2007, the floor space index (FSI) for residential projects was 1.33 and for IT parks it was 2.66. Ergo, most developers opted to go in for IT parks rather than residential projects. But as the slowdown hit the market, there was no movement in sales in any of the realty sectors. After a year of slowdown, the residential segment has started showing some signs of recovery. The commercial segment is expected to take a year more to show some signs of recovery. This is why developers are converting their commercial projects into residential projects.
The additional FSI being offered (from 2.66 to 4), if developers also construct parking spaces in residential properties, is also attracting developers.
“The higher FSI option in the residential segment is pulling in more and more developers,” said Mr Kapoor.
Indage Vintners has been staring at financial losses for a long time and is not able to pay its suppliers and service providers. Now, CRP, its supplier of ‘bag in box’ packaging, has issued a warning to other suppliers not to have any dealings with Indage.
Complaints from investors and suppliers don’t seem to end for Indage Vintners; this time the problems of India’s oldest and biggest wine-maker are emanating from the UK-based CRP Print & Packaging Ltd which has warned other suppliers against dealing with Indage after it failed to honour its purchase contracts.
“Calls on the guarantee provided by Indage to CRP have not met with open dialogue, but instead a closed shop of silence. Those seeking to trade with Indage going forward or placing their critical supplies at the behest of this entity should beware,” CRP said in an email.
Officials from Indage were not available for comment.
CRP is the sole supplier of ‘bag in box’ packaging and technical expertise to Indage. CRP said it had sought an assurance from Indage to enable its continued support and partnering of the business.
Santosh Verma, managing director of Indage Vintners Ltd, had offered a parent guarantee to CRP to cover a line of credit which was provided on the clear understanding that the guarantee would be upheld if the business fails or the terms of credit are violated, CRP said. Indage’s chief financial officer, Rajesh Chalke had provided “honourable assurances that the covenant of Indage was strong and should the eventuality arise, Indage would never walk away from its responsibilities,” it added.
Indage UK has now traded insolvently for 18 months on monies borrowed under false promises from its UK and worldwide suppliers, CRP alleged in its mail.
“Management sight a number of factors, but the traits of its predecessor’s failed businesses are evident once again; no in-house financial controls or credible reporting function and no financial disclosures (FD) despite a number of appointed officials; no local management to control or run the business day to day and no working-capital facilities to support the operation,” CRP said in the mail.
CRP said the UK entity of Indage has now entered a period of voluntary arrangement supported by the UK Revenue authorities and its own group entities and creditors are “again left in a limbo and clinging to a plan that is predicated on the same honourable promises given in 2008.”
In October, Indage UK had let go of around a 100 employees; and in 2008, around 250 employees left the company after not being paid. Indage has not been making payments to its suppliers and service providers since the beginning of 2009. Soon afterwards, it stopped paying its employees, forcing some of them to approach the police.
According to an ex-employee, there is a lack of communication between Indage Vintners and its sister companies and also a lack of financial accountability. “The company lacks vision, plus it doesn’t do any market segmentation for its wines,” he said.
According to company sources, recently a lot of senior employees from the marketing and sales departments have also quit.
Developers cited reasons like demand slump, fund shortages and land acquisition problems as the reasons for seeking de-notification of SEZs and for the delay in projects
The mad rush to set up special economic zones (SEZs) that house export-oriented manufacturing units three years ago turned cold in 2009, as demand for commercial space waned due to the global meltdown, reports PTI.
Rentals for commercial complexes fell sharply and the land, developers felt, could be employed for other purposes. Realty major DLF got four such SEZs de-notified by the commerce ministry, citing lack of demand for commercial space, and Parsvanath has put 12 projects on hold.
Non-realty players like Essar have also sought permission to pull out of an SEZ project at Hazira, Gujarat, while about 90 developers were given more time by the Board of Approval (BoA) in the commerce ministry to execute their business plans. These included the likes of Reliance Industries, Infosys Technologies, Jindal Stainless Steel and Wipro.
"With slowdown in economic activity, developers need more time to execute their projects," said Ajay Midha, director, Rahejas SEZs Ltd. He said that the impact of the global economic crisis was definitely felt on SEZs.
As there were not many seekers for the tax-free enclaves, the BoA met less frequently dealing more with requests for withdrawals and time extension than fresh proposals.
Developers cited reasons like demand slump, fund shortages and land acquisition problems as the reasons for seeking de-notification and delay in projects, a commerce ministry official said.
In 2006, when the SEZ rules were notified, there had been a mad rush for setting up such enclaves. These special enclaves were already hit by problems of land with resistance from farmers and new rules against the States enforcing land acquisition.
Big projects like the Navi Mumbai SEZ, Reliance Haryana SEZ and Posco could not take off as land acquisition problems remained unresolved.
Although developers want themselves out of such projects, director general of the Export Promotion Council for Export Oriented Units (EoUs) and SEZs LB Singhal feels the concept of tax-free enclaves is not passe just yet.
"People have been expressing doubts that the scheme is slowing down a bit, but the number of applications for de-notification is minuscule," Mr Singhal said, adding that 101 operational SEZs are providing employment to 4.18 lakh people.
Exports from these entities during the first six months of 2009-10 stood at Rs89,750 crore against Rs90,000 crore in the last full fiscal. So far, 570 formal approvals have been granted for setting up of SEZs, of which 346 have been notified. A total amount of Rs1,30,341 crore has been invested in SEZs.
At the policy level, the government issued fresh guidelines allowing fiscal exemptions to a power plant in the 'processing' area of the SEZ. The norms allowed exemptions not only to the power SEZs but also plants set up in the processing area for captive energy consumption.