Financial Daily from THE HINDU group of publications
Friday, Mar 18, 2005
Industry & Economy - Real Estate & Construction
IT's good bet for realtors across cities
Mumbai , March 17
CASH-RICH real estate and construction majors are setting up IT parks across the country on the scale of mass housing. Such is their optimism based on Nasscom projections that properties are being developed regardless of whether there is guarantee of occupancy or not.
Among the new entrants in this sector is the well-known Shapoorji Pallonji group, which is planning up to seven IT parks across the country. "We build both build-to-suit as well as speculative space," said Mr A.R. Sinha, CEO of the real estate division of the group.
According to him, the real estate industry is now a driver of the IT industry, albeit with none of the benefits that the latter enjoys.
"We pay Rs 3-5 crore for the same piece of land that State industrial corporations sell at Rs 20 lakh or Rs 50 lakh to IT companies directly," he said.
Nevertheless, the demand is projected to be explosive and the returns too good for the opportunity to be not explored.
The creation of IT space is mostly for overseas outfits that do not want to invest in immovable assets; the Infosyses and Wipros of the country largely buy their own space from State industrial corporations and develop them.
As such the risk is greater for IT space developers, since cheaper labour elsewhere could easily lead BPOs to exit to other countries.
Add to it the higher cost of constructing IT and ITES space. BPO outfits in fact require large "floor plates" ranging from 10,000 sq ft to even 50,000 sq ft of uninterrupted space on a single floor, more height, 24-hour power and communications back-ups and so on.
This makes for easier administration, monitoring and security costs for BPOs, says Mr Rao, Managing Director of TCG Urban Infrastructure Holdings.
This NRI-held company has targeted 3-4 million sq ft of space across the country in the next three years, having already developed nearly one million sq ft, part of it in joint venture with Maharashtra Industrial Development Corporation in Pune.
But the returns are good, the profits being around 12 per cent on investments every year, says Mr Rao.
Also, the larger companies can capitalise their rentals and sell them to an investor to raise more funds, says Mr Sinha.
His company's 80-acre site in Pune can support built-up space of five million sq ft.
This is comparable to the space that the Ascendas-Tata Industries-Karnataka Government joint venture has targeted for its much talked-about International Technology Park in Bangalore.
The other IT parks are to come up in Hyderabad, Kolkata, Bhubaneswar, and a few other cities that have been tentatively identified.
Akruti Nirman, a Mumbai-based developer that has put up three IT buildings in the city, is planning two more in Mumbai and Pune. This despite Mr Vimal Shah, Managing Director of the company, stating that no easy exit is possible for an IT park developer, and that BPOs can be globally very mobile.
Giant joint ventures with State-owned corporations have already developed space and claim that occupancy almost immediately follows construction.
The K. Raheja group is in joint venture with the Andhra Pradesh Industrial Infrastructure Corporation for its Mindspace IT Park at Hyderabad, which already houses Qualcomm, Oracle and the like.
The Singapore-based Ascendas is a big player: apart from its Bangalore park, it is also partner-promoter for a Chennai IT park, not to mention its recent acquisition of Vanenburg IT Park in Hyderabad from the Dutch technology group, Vanenburg.
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