INDIA BUSINESS WORLD - APRIL 2006
THE MONTH THAT WAS

REALTY COS SET TO BUILD ON SEZS'TAX-EXEMPT STATUS

REAL estate developers, riding on total tax exemption, are eyeing special economic zones (SEZ) as the next destination. Almost all developers worth their salt are making a beeline for a big-bang plunge into development of SEZs. So much so, most haven't even waited for project approvals before announcing mega IPOs considering the investment demands for such huge projects.

Finance ministry officials tracking the trend are a worried lot. For, this would not only mean large-scale investments in infrastructure and construction but the real estate boom would also lead to tax arbitrage. Senior government officials said that most of the land would be bought from farmers at cheap rates and the earnings from these estates too would be tax exempt. “Most of the real-estate developers are looking at SEZ as an extension of their business in related area where the land comes cheaper — for instance, land in agriculture zone is quiet lucrative,” says Omaxe Construction managing director Rohtash Goel. While nothing is in the pipeline, Omaxe sees its entry into SEZs at a later stage.

DLF has already announced its plans to put in Rs 30,000-40,000 crore in six SEZs while it hit a stumble block: the company's proposal has been rejected by Haryana and Andhra Pradesh governments. However, this hasn't dampened its spirits. Now Ansal Properties & Infrastructure is looking to set up four such projects in Greater Noida, Uttar Pradesh, Mohali and Rajasthan. The company has got an approval for the first IT park in Greater Noida. The 75-acre project will see an investment of close to Rs 1,000 crore. Overall, Ansal plans to invest Rs 8,000 crore in four SEZs. So are Omaxe and Unitech.

According to Ansal Properties & Infrastructure ED Rakesh Jain, the China experience has led all to believe there's a big opportunity in SEZs for the property developers. “We foresee a lot of global companies setting up bases in the country, but they would need a hi-tech infrastructure, which means there's going to be a rise in demand for SEZs,” he says.

The drive to develop SEZs is clearly triggered by the huge fiscal sops that have now been extended to service providers and developers as well. Tax sops were earlier given only to exporters that were exporting goods to foreign markets and earning foreign exchange. The new Act allows even developers and service providers within these zones to enjoy similar benefits .