DENOTIFICATION OF SPECIAL ECONOMIC ZONES
Since March 2020, special economic zones and IT Parks had been seeing high vacancy levels, with the withdrawal of direct tax bene- fits. As per reports, currently there is around 170 million square feet of ready IT SEZ office space in the top 6 cities, of which over 30 msf is lying vacant. Another 10 msf of SEZ space is coming up that will be completed over the next two years. The major real estate reform is being termed as a significant step in the ongoing efforts to increase occupancy in IT SEZ assets. Vivek Rathi, National Director Research, Knight Frank India sharing his views on the announcement made by GOI, Ministry of Commerce (SEZ Depart- ment) on floor-wise denotification of Special Economic Zones through a key amendment to SEZ Rules, 2006, said, “The revision in the Special Economic Zone (SEZ) Rules mark a significant moment for stakeholders involved in office segment across India. This amendment permits partial and floor-wise denotification, thus introducing fresh possibilities for utilization within SEZs, especially benefiting the IT and ITES compa- nies as they currently dominate the SEZ landscape. In 2023 too, in the backdrop of a tough global envi- ronment, the India office market is on track to record healthy transac- tions growth. Meanwhile, the supply momentum has moderated after the pandemic related interruptions. This revision in SEZ rules will infuse new office supply, which in many cases is in sought after markets, and further help the cause of office demand. The adaptability provided by floor-wise denotification offers various leasing prospects and will contribute to increased office oc- cupancy rates in such SEZ assets. Overall, the amendments in SEZ reg- ulations are anticipated to strongly support industry demand, and the adjustments are viewed as vital for enhancing the office sector in India." In the previous SEZ frame- work, business between occupiers of SEZs and (Domestic Tariff Area or non-processing zone) DTA was cumbersome and difficult. However, along with de-notification, trans- action between SEZs and DTA will become easier. Anshul Jain, Managing Director, India & Southeast Asia and Head of APAC Tenant Representation, Cush- man & Wakefield adding his views on the latest industry development pertaining to SEZ denotification stated, “This is a long-awaited and positive move for India’s commer- cial real estate sector. Benefits such as more flexibility in the manner of carrying-out business in SEZs, partial de-notification and ease of transaction between SEZs and DTA (Domestic Tariff Area or non-pro- cessing zone) and streamlined pro- cess of approval for de-notification, will protect the interest of both de- velopers as well as occupiers of SEZ developments (both existing and under-construction). Partial de-no- tification should result in a lot of space getting freed-up, which was earlier blocked-out for carrying out domestic business. This will increase the attractiveness of such spaces to a diversified set of occupiers. In the erstwhile SEZ framework, business between occupiers of SEZs and DTA zone (Domestic Tariff Area or non-processing zone) was cumbersome and difficult. However, along with de-notification, transaction between SEZs and DTA is easier. Therefore, occupiers with businesses that engage in exports as well units that cater to domestic clients, will now not be required to locate in separate office buildings. A streamlined process of approval for de-notification will also encourage many landlords to open-up de-notified spaces soon.” The real estate players are of the view that this progressive stance of the government is a significant step in the ongoing efforts to increase occupancy within IT SEZ Parks, boosting economic activity and creating more jobs. As per the Special Economic Zones (Fifth Amendment) Rules, 2023, the board of approval, on request of a developer of an information technology (IT) or IT-enabled ser- vices SEZs, may permit demarcation of part of the built-up area of the SEZ as non-processing area. Aravind Maiya, Chief Executive Officer, Em- bassy REIT, said, “We are extremely pleased with the regulatory announcement, and would like to thank the government for their responsive ac- tion in addressing and resolving this issue. This marks a highly positive development for India's office sector, already gaining strong momentum from global captive centers (GCCs). Currently, our SEZ occupancy levels are around 80%, and this amendment will further elevate the attractiveness of our 20 msf premium grade-A SEZ office spaces, positioning Embassy REIT on a trajectory towards achieving pre-COVID occupancy levels." Alok Aggarwal, Chief Executive Officer, Brook- field India Real Estate Trust expressed, “The Gov- ernment announcement with amendments to the SEZ Rules is an extremely encouraging move. This will help us meet the growing needs of the IT/ITES Sector and GCCs and further diversify our tenant base. Our SEZ’s offer high quality world- class facilities and amenities and are strategically located at prime locations. Our SEZ campuses are seeing significant leasing activities and rebound in occupancies. These amendments are going to further fasten the achieving of higher occupancies and enhance value for all stakeholders.” IN A RELIEF TO OWNERS AND OPERATORS OF OFFICE PARKS ACROSS THE COUNTRY, THE AMENDED RULES WILL INFUSE NEW OFFICE SUPPLY SINCE THE ADAPTABILITY PROVIDED BY FLOOR-WISE DENOTIFICATION WILL PROVIDE VARIOUS LEASING PROSPECTS. REVISIONS IN THE SPECIAL ECONOMIC ZONES (SEZ) RULES The Central government has allowed partial and floor-wise denotification of SEZs through a key amend- ment to SEZ Rules, 2006. This non-processing area can be utilised to set up operations of businesses engaged in IT and ITeS. However, the non-processing area will consist of a complete floor and part of a floor will not be allowed to be demarcated, as per a notification issued by the De- partment of Commerce on 06 December, 2023. Developers can lease the non-processing area to IT companies not involved in export activity and reduce the vacancy levels at their office complexes. As per the Special Economic Zones (Fifth Amendment) Rules, 2023, demarcation of part of the built-up area of the SEZ as non-processing area may be allowed, on request of a developer of an IT or IT-enabled services SEZs. The board of approval will allow demarcation only after repayment, without interest, of tax benefits attrib- utable to the non-processing area, social and commer- cial infrastructure for both processing and the proposed demarcated area. Demarcation of non-processing area will not be allowed if it results in decreasing the processing area to less than 50 percent of the total area or less than 50,000 sq. mtrs, 25,000 sq. mtrs and 15,000 sq. mtrs in category A, B, and C, respectively. Apart from the expansion of companies’ office spaces, the benefits of SEZ areas will also be extended to non-SEZ entities and is expected to unlock vacant spaces in operational SEZs, with the revised policy.
Tags : special economic zones Anshul Jain Vivek Rathi Alok Aggarwal SPECIAL ECONOMIC ZONES DENOTIFICATION Brook- field India Real Estate Trust