Building on IT, in a big way

SEZ Project

Excerpts from an interview with Mike Holland, CEO of Assetz,  a multi-sector property development and asset management company based in Bangalore.

What are the benefits of an SEZ?

As an SEZ, one has to be Forex positive as a whole and as a unit in five years. This is from the government’s perspective. In the private sector, it is more like a landlord-tenant relationship where you are the owner and occupier of a property. An SEZ has more of a triangular relationship – you have the owner, occupier and the SEZ commissioner.

The benefits to the developer and the unit (occupier) are the tax benefits on income staged over 15 years. For the first five years, it’s 100 per cent, the next it’s 50 per cent and after 10 years, it is between 0-50 per cent. Aggregated, there is a 50 per cent benefit.

There are other benefits on the input and output costs. If I have to buy cement and steel, then I will not have to pay excise on those.  There are however restrictions on what I can bring in and out from the zone. Service tax benefit is another directly beneficial advantage. If you are providing a service to someone directly out of that park, then immediately, the 10 or 12 per cent service tax as applicable in that state will be a direct benefit to the customer. So when you as a developer are leasing out to a unit, there is no service tax on that, but you will find it on places outside.  

What is the scope of FDI for SEZs?

The SEZ real estate allows FDI, making it attractive. This explains the stampede for SEZs a few years ago. Domestic developers saw it as a means to exit easily.  

You create an SEZ, use FDI and exit. That is also why a lot of people are denotifying their SEZs. After a while, it was realised that a mature market can only have so much of room for development in one sector. It is also related to the extension of the STPI with each year.  

Considering the recent low in real estate, what would constitute a good year for a project like VTV?

If you go into a subset like real estate, VTV is not one of those short-term sales transactional type of businesses. It’s not like the residential market where it is a good year when I sell more apartments and make a killing on the capital front.

Special Economic Zones are more of a 10-year project. It takes at least five years to create a world-class business park and a good year would mean activity, leasing and top brands coming in. Leasing deals in the corporate world take at least six months to finalise. You need to have a long-term or a medium-term perspective on SEZs that way.  

Needs are constantly evolving in the IT sector. How do you handle possible requirement changes that occur from the time of conception to its actual execution?

One has to understand the needs of the customer. It is no different from the residential market. You will need to study the demographics and look at what is important to a corporate buyer. Amenities are important for them. Infrastructure in terms of utilities is critical.

There is also demand for arrangements like transportation, social amenities like shopping, food etc.  On the technical side, buyers will look at how your product will shape up in terms of security. In designing a business park, there are numerous players who will turn away if your security arrangements are not adequate.  

The requirements of customers may change in terms of space – where they want to decide whether they need 30,000 sq ft of space. You will need design with flexibility – an occupier may want 30,000 sq ft of space today but may want to upgrade to 50,000 sq ft in five years. The stress is on how I accommodate this. Usage of power too will be on the basis of the type of company. It all depends on how you perceive the market to be in two years and how well you know your customer’s needs. You can use NASSCOM data, work with people from the industry and observe the overall economy and the competitive supply situation.  

Infrastructure has been a grouse with several players... Yet Bangalore continues to stand tall. Are projects now becoming self-sufficient in terms of infrastructure?
Commercial real estate market is a commodity provider. We provide premises that people work in. Commercial real estate follows the IT industry. There are definitely questions about infrastructure in Bangalore and rightly so.

The reality around real estate and business infrastructure in India is that you have to provide it yourself. At VTV, we have a standalone captive power generation facility, multiple incoming power sources from the utility, and a network for data communication across the park. We have a four-lane road in the park.

You can do that when you have a 106-acre scale. It’s very difficult to provide top class infrastructure if you are working on a small project because you are dependent on things outside your own holdings.

What is the impact of such large scale projects on the IT industry?

Once a company achieves critical mass, the amenities that it can offer its employees are significantly better than in a standalone structure. A lot of it is due to the scale of the project. The physical environment is much more pleasant. Another advantage is the ease of car parking. Also if companies are planning to expand but unsure of the space they will need, those demands can be catered to.

We are also looking at companies that may want to have their own standalone buildings in the campus. 

Vrindavan Tech Village (VTV)

On how VTV is strategically located...

The Tech Village is a 106-acre SEZ. It is sandwiched between the Intel and Cisco campuses on Outer Ring Road, Sarjapur. It is located at the heart of India’s Silicon Valley. 

You have the Airport on one side, Electronics City on the other and Whitefield on the third. This is generally accepted as core IT/ITeS space. With improved housing facilities in surrounding areas as well as areas such as Jayanagar and JP Nagar close at hand, the area has immense potential. 

How important is a good location?

Business location is all about people. In IT and ITeS, your factor of production is people. So you will want to be close to your factor of production. When companies make a decision on location, they will always look at where its people are based.

That is one of the reasons why it will take some years for industries to drift more to the north. Also, when companies look to consolidate, they will do so between the existing infrastructure and the catchment area, rather than completely relocate to a new place. 

The 106-acres are master planned by HOK, based out of Hong Kong. Phase II is a natural progression to the overall plan. We began construction in 2008 and are currently leasing. The time now, we feel, is right to do so, because from a micro-perspective, phase I is fully leased.  From the macro-perspective, the year 2009 has been bad for real estate worldwide. Because we anticipated that, we slowed down work on phase II. While we continued with the construction, delivery was prolonged.

By Q3 people were slowly back in the market.  

The campus has also won LEEDS certification – platinum rating.

It’s all about energy use and sustainability in construction process. LEEDS is not just about the environment but how I go about my construction process.

If you are looking at short-term investments, then building cost-effective infrastructure may not be feasible.