DTZ+Insight+Special+Economic+Zones+in+India+June+2010

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www.dtz.com 1

DTZ InsightSpecial Economic Zones in India

Expanding Contours

3 June 2010

Contents

Executive summary 1Introduction 2

Macro review 3City reviewsDelhi NCR 7Bengaluru 8Mumbai 9Chennai 10Pune 11Kolkata 12Hyderabad 13Policy review 14Conclusion 18Definitions 19Contacts 20

Author

Priyankar BhikshuHead of India Research+91 (0)124 459 [email protected]

Shveta MahajanAssistant Research Manager+91 (0)124 459 7500

[email protected]

Contacts

David Green-MorganHead of Asia Pacific Research+61 (0)2 8243 [email protected]

Hans VrensenGlobal Head of Research+44 (0)20 3296 2159

[email protected]

As government support for the old regimes of Software Technology Parksof India (STPI)/Export Oriented Units (EOU) nears expiry, we believeSpecial Economic Zones (SEZs) are the way forward for export ledcompanies planning to expand in or enter India.

Relocation and consolidation in SEZs are likely to continue to facemultiple operational challenges due to regulatory impositions on themigration from STPI/EOUs to SEZs.

The markets are in a readjustment mode as the economic recession hastriggered many exits, and we expect only the proactive states, suitablelocations, right formats and capable players to emerge stronger in theSEZ space in the short to medium term.

We believe the states of Karnataka, Andhra Pradesh, Tamil Nadu,Maharashtra and Gujarat are likely to set the pace in the short term for thefuture SEZ landscape. We expect the others in the race to ride themomentum in the medium to long term.

While the IT/ITES format should continue to account for a sizable amountof activity, we expect multiproduct and sectoral SEZs (comprisingengineering and pharma) to add to the pace of SEZ growth.

As funding in SEZs remains constricted, we expect development activityin the short to medium term to be limited to SEZs that are captive innature, government supported or those promoted by developers who arein sound financial health, with proven execution capabilities.

Landlocked cities such as Bengaluru, Delhi, Pune and Hyderabad withSEZs nearer to their existing economic clusters are likely to remain moreactive in terms of occupational demand from the IT-ITES industry. Webelieve coastal cities such as Mumbai and Chennai with SEZ locationsaway from city centres are better placed for manufacturing led SEZgrowth.

Only 25% of the notified SEZs have reached the operational stage. Withonly modest additions proposed for the next two years and demandsignals being affirmed, the short term supply demand gap may put upwardpressure on SEZ prices.

Some of the key policy issues of the SEZ debate in India are theimplications of a proposed Direct Tax Code, inconsistencies between theSEZ and income tax acts, a lack of state commitment and support, andlimited clarity on an exit strategy. We expect the clarification of theseissues to be instrumental in shaping the character of this new tax haven.

As policy ambiguities continue to limit growth and expansion for investors

and potential incumbents, we expect a stable and clear policy regime toprovide a much needed impetus for expanding the contours of SEZs inIndia.


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Introduction

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55

131

8476

4

0

20

40

60

80

100

120

140

2006 2007 2008 2009 2009(Denotified*)

(No. of SEZsnotified)

0.0

2.0

4.0

6.0

8.0

0.0 1.0 2.0 3.0 4.0

Supply(2010-11,ms

qft)

Vacancy (m sq ft)

Delhi NCR

Hyderabad

Pune

Chennai

Bengaluru

Mumbai

Kolkata

After a head start in 2006-07, there has been asignificant decline in interest in SEZ

1development,

with incidences of denotification (exits) anddownsizing surfacing. Members of the developmentcommunity have cited the economic slowdown andliquidity crunch as reasons for their inability toexecute their SEZ plans, but we believe the downturnhas helped differentiate the speculative interests fromthe projects planned on fundamental businessmodels.

The acceleration in SEZ approvals during 2007 was

followed by a year on year (y-o-y) decline of nearly25% during 2008-09. The phenomenon ofdenotification led to many of the leading and some ofthe earliest SEZ entrants exiting the market. With thegovernment not raising any serious concerns overthese exits, subject to a complete refund of all fiscalbenefits availed to date, what we see now is abalancing act of markets. From here, we expect themarkets to move to a state in which only seriousplayers with definite intent or the capability toexecute projects in the medium to long term wouldbe left (Figure 1).

By not addressing the extension of the STPI/EOUscheme, the 2010 budget signalled a likely end to theexisting tax regimes. This would mean a directdemand fillip for SEZs, which would be the only taxhaven for IT/ITES and export-led manufacturingcompanies in India.

Amid these economic uncertainties and positivedemand signals, the markets are becoming moredefinite in terms of locations, formats and players thatshould take the SEZ growth story to its next level inthe short to medium term.

This report, which is the second in a series on

Special Economic Zones, corroborates the data withopinions of various stakeholders, includingdevelopers, investors, occupiers and financiers toanalyse these emerging trends in SEZs and theopportunities they hold. This study takes a closerlook at the on-the-ground progress of SEZs and keypolicy issues that would be instrumental in shapingthe character of the SEZ regime in India.

This study provides a macro view of all major SEZformats and geographies, and a detailed review ofthe development status of IT/ITES SEZs across thekey Indian cities (Figure 2).

1A Special Economic Zone (SEZ) is a specifically delineated, duty-free enclave set up

within the geographical boundaries of a country and is deemed to be a foreign territory

for the purpose of trade operations, duties and tariffs. The economic laws and revenue

regulations of the Domestic Tariff Area (DTA) are not applicable within a SEZ. The

basic objectives of setting up SEZs in India have been to promote exports, earn

foreign exchange and generate additional employment in the country.

Figure 1

SEZ activity, 2006-09(SEZs notified under SEZ Act 2005)

*Requests for 8 more SEZs approved; denotification to be given on refund of all duties availed

Source: Ministry of Commerce & Industry, DTZ Research

Table 1

Status of SEZ approvals

(Year End) 2007 2008 2009

Notified SEZs*

205

289

365

Formal approvals(pending notification)

232 278 224

Valid In-principle approvals 165 141 147

Operational SEZs 30 58 105

* This Includes Old SEZs (19 zones that have been notified prior to SEZ Act, 2005)


Figure 2

Status of non-captive IT/ITES SEZs in key cities

Source: DTZ Research *The size of the circle represents existing stock


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Macro review

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27%

25%

26%

10%

23%

52%

25%

27%

18%

14%

(% Operational)

73

57

54

31

30

29

16

15

11

7

51

23

28

14

11

20

8

8

5

4

0 10 20 30 40 50 60 70 80

Andhra Pradesh

Maharashtra

Tamil Nadu

Haryana

Gujarat

Karnataka

Uttar Pradesh

Kerala

West Bengal

Rajasthan

(No. ofNotified SEZs)

2009 2007

+ 43%

+ 148%

+ 121%

+ 45%

+ 93%

+ 173%

+ 100%

+ 88%

+ 120%

+ 75%

20

14

14

3

7

15

4

4

2

1

(No. Operational)

Location trends

Some states have exhibited a commitment to thedevelopment of SEZs, reflected in a morecontrolled/lower percentage growth inapprovals/notifications and higher percentage ofalready approved SEZs reaching the stage ofoperations.

Based on these evaluation criteria, Karnataka andAndhra Pradesh have been the best performing todate, with growth in the number of notified SEZs

during 2007-09 being lower than the average growthof 100% and the percentage of SEZs currentlyoperational higher than the average of 25% for the top10 SEZ states. They are followed by Tamil Nadu andMaharashtra (Figure 3).

While the character of SEZ growth in the four top-performing states is skewed in favour of smallIT/ITES SEZs, Gujarat has demonstrated animpressive performance with large manufacturing ledmultiproduct SEZ formats. Three multiproduct SEZs(notified after 2005), namely Mundra, RelianceInfrastructure and Dahej, are currently operational in

the state, the highest number in the country.

The rate of growth of additional approvals hasremained high in Haryana, however on-the-groundimplementation to date has been abysmal. Thegeography is characterised by a high percentage ofvacant non-SEZ stock, resulting in developersholding/shelving their SEZ plans until the uncertaintysubsides. Also, the state, unlike its southerncounterparts, is not backed by demand for campus-style IT SEZ developments, further limiting its scaleand pace of supply addition. The service orientedITES led character of the geography would provide ademand pull for IT SEZs. However, the real uptick indevelopment activity in the short term would beconfined to the players that have already taken off orare prepared to do so in the near term. Together withthe adjoining state of Uttar Pradesh, the state ofHaryana would augment its SEZ infrastructure in themedium term.

We thus expect the five states of Karnataka, Andhra,Tamil Nadu, Maharashtra and Gujarat to lead thescale and pace of SEZ growth in the short term (nexttwo years). With many of the proposed projects nowoperational or in advanced stages of implementation,these states have set precedents that should create ademand pull in their favour over other states.Moreover, with their state-level SEZ policies andenabling acts in place, these states have taken a leadin creating a conducive environment for an SEZ

occupier. Other promising states, including Haryana,Uttar Pradesh and Kerala, are likely to catch up in themedium term, in our opinion.

Figure 3

Performance of notified SEZs by state(SEZs notified under SEZ Act 2005)



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Macro review

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29%

18%

40%

0%

(% Operational)

0%

+ 76%

+ 105%

+ 67%

+ 100%

59

21

6

0

(No. Operational)

0

206

115

15

8

3

117

56

9

4

0

0 50 100 150 200 250 300

IT/ITES

Sector Specific

Multi-product

Multi-service

FTWZ

(No. ofNotifiedSEZs)

2009 2007

5

4

1

4

(No. Operational)

1

1

1

+ 157%

+ 64%

+ 325%

+ 33%

+ 71%

+ 75%

+ 150%

28%

22%

6%

33%

(% Operational)

8%

14%

20%

18

18

17

12

12

7

5

7

11

4

9

7

4

2

0 5 10 15 20 25 30

Engineering

Pharma

Biotech

Electronics

Textiles

Food & Agro Based

Gems & Jewellery

(No. ofNotifiedSEZs)

2009 2007

Format trends

While IT/ITES accounts for a maximum share innotified and operational SEZ projects, a closer lookat the performance of SEZ classes reveals thatmultiproduct and sectoral SEZs have attracted moreinterest during the last two years. This is reflected inhigher percentage growth in approvals/notificationsand a higher proportion of already approved SEZsreaching the stage of operations during the sameperiod.

Sectoral SEZ approvals have grown at 105% duringthe past two years, which is higher than the averagerate of 87% for all formats together. The proportionof multiproduct SEZ projects currently operational(40%) is higher than the average proportion ofoperational SEZs (25%) for all formats together(Figure 4).

While IT/ITES (including electronics) should continueto account for a sizable proportion of SEZ growth, webelieve multiproduct and sectoral SEZs (comprisingengineering and pharma) would also emerge as thekey drivers, going forward. Furthermore, we expect

manufacturing-led zones to drive growth in the SEZspace in locations such as Chennai and Mumbai,where SEZs have been established away from thekey economic clusters. Service-led SEZs locatedcloser to city centres should take off much faster(Figures 4 and 5).

We observe that there is a natural progression ofthose industries/sectors towards the SEZ model, forwhich India has a competitive advantage and whichhave grown in the country due to their exportoriented/outsourcing character. What we do notexpect in the short to medium term is the growth of

any major new industries through the SEZ model.

The overall investment and operational performanceof SEZs during 2007-09 looks encouraging. However,a closer evaluation of the additional economic activitythat has come by way of investments, exports andemployment through new SEZs (SEZs notified underthe SEZ Act 2005) reflects the real activity and interestin SEZs, as analysed in the sections below.

Figure 4

Growth of notified SEZs by class(SEZs notified under SEZ Act 2005)


Figure 5

Growth of notified SEZs by sector(SEZs notified under SEZ Act 2005)



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Macro review

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47,158

81,093

114,640

0

20000

40000

60000

80000

100000

120000

140000

2007 2008 2009

(INR crores)

Old SEZs New SEZs

Investment trends

A look at the investment performance of SEZs during2007-09 reveals that more than 90% of theinvestments that have come during the period havebeen channelled into new SEZs (notified under theSEZ Act 2005). However, the investments mobilizedin new SEZs during 2007-09 is nearly 60% lowerthan projected in 2007 (Figure 6).

Foreign direct investment (FDI) accounts for only10% (INR10,983 crores) of the total cumulative

investments that have come to SEZs during 2007-09.Amid the recessionary market conditions, uncertaintyon the policy front has further limited the foreigninvestment communitys interest in investing in SEZs.With payoff periods becoming longer than expected,some of the private equity investments during2007-09 are also being re-evaluated.

The banking communitys interest in funding SEZprojects is at an all-time low, with very limitedproposals being evaluated during the last year and anegligible proportion being approved. SEZs arecurrently not considered a lucrative asset class for

debt funding, from a security and performance pointof view. Demand viability is becoming more difficult toprove for developers as many of the projects areahead of time or are currently unviable due toinadequate demand or location disadvantage. This isworsened by the states lack of commitment inprovisioning support infrastructure at project sites.

With longer gestation periods and uncertain demand,alternate asset classes such as residential andinfrastructure projects like ports/bridges are morelucrative to private/foreign investors and financiers.This indicates a situation in which the followingcategory of promoters is likely to populate the SEZspace in the short to medium term:

Captive SEZs SEZs Led by large developers in good

financial health and proven executioncapabilities on sites located near existingclusters

Government promoted/backed SEZs in whichthe government initially invests ininfrastructure/utilities to create an enablingenvironment.

Figure 6

Cumulative growth of investments in SEZs


Figure 7

Y-o-Y export growth in SEZs


Figure 8

Cumulative growth of employment in SEZs


34,615

66,638

99,689

0

20,000

40,000

60,000

80,000

100,000

120,000

2007 2008 2009

(INR crores)Old SEZs New SEZs

235,053

349,209

488,000

0

100000

200000

300000

400000

500000

600000

2007 2008 2009

(No. of people)

Old SEZs New SEZs


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Macro review

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Export trends

While overall SEZ export performance looksimpressive, the additional economic activity by way ofcontribution from new SEZs remains far lower.Exports from new SEZs account for only 20% of totalSEZ exports, with the remainder accounted for by theold economic zones (Figure 7). Although the on theground implementation of projects is lower, the

performance is reflective of the low take-up withinSEZs that are operational. Until 2009, nearly 850 unitshad been approved for operations through 86 newzones, compared with 1,200 units operating throughjust seven old government zones (Export ProcessingZones converted into SEZs). This reflects on themarket supply-demand gap for SEZs, even withinprojects that have managed to successfully take off.

Employment trends

Employment in new SEZs has grown fivefold during2007-09 and accounts for nearly half of the total

estimated employment in all SEZs at present (Figure8). However, the current level of employment is lessthan 10% of the total employment projected throughnew-generation SEZs. But, noticeably the employmentpropensity of new SEZs is far higher than the oldSEZs due to their service oriented character (Table 2).This reaffirms the government objective to createadditional employment through the SEZ model.

Outlook

The current scale of SEZ activity is visibly smallcompared with what was envisaged three years ago.The pace, spread and period of SEZ growth has beenfar more optimistic and belied by speculative models,rather than being due to the right timing, real demand,preparedness and fundamental capabilities to execute.As the markets readjust and government support for

old regimes such as STPI/EOU nears an end, the pro-active states, suitable locations, right formats andcapable players should survive the race. Whileindustry stakeholders are uncertain about thecharacter and future form of the SEZ framework, theybelieve in the long-term sustainability of the concept,which has proven its success worldwide. Theconsensus is, SEZs are here to stay.

The next section takes a closer look at theperformance of SEZs in the key real estate markets ofIndia, with a focus on IT/ITES SEZs.

Table 2

Operational performance of notified SEZs in India

Status updated as onDecember 2009

(No.)

NotifiedSEZs

OperationalSEZs

No. ofOperational

IT/ITES SEZs

[% of Total]

Units approvedin SEZs

Employment

AverageEmploymentIntensity per

unit

Central Government SEZs

(EOUs converted into SEZs)7 7

0[0%]

1200 2,00,000 167

State/Pvt. SEZs

(Set up prior to SEZ Act)12 12

2[17%]

650 61,000 94

New SEZs(Notified under the SEZ Act) 346 86 59[69%] 850 2,27,000 267

Total 365 105 61 2,700 4,88,000 181[58%]



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City reviews Delhi NCR

www.dtz.com 7

By the end of 2009, as many as 48 SEZ notificationsand 29 formal approvals (pending notification) hadbeen given in NCR, the highest among all major cities.IT/ITES SEZs accounted for a significant 80% of theproposed SEZ developments in the region, withbiotech, multiservice and engineering SEZsaccounting for the rest. In terms of geographicalspread, nearly 60% of these developments areconcentrated around Gurgaon, 38% around Noida,including Greater Noida, and only 3% in Delhi(Figure 9).

Despite being one of the highest in terms of number ofapprovals, on the ground implementation of SEZs inNCR has remained much lower than its counterpartsin the southern and western parts of the country. Onlynine, or 19%, of notified SEZs are operational to date,of which three are captive campuses and one is an oldEPZ (NEPZ). Due to the supply glut created in thenon-SEZ IT space, together with the IT demanduncertainty that surfaced during the recession,developers either kept their SEZ development planson hold or shelved them. There have been incidencesof developers vouching for potential buyers to sell theirstakes at project (SPV) level.

Supply addition in the SEZ space to date has beenmodest, with SEZs accounting for 12% of total IToffice space inventory in the region. Most of theconstruction activity has been a result of pre-commitments made in 2007-08. As a result, more than80% of the existing IT SEZ stock is currently absorbed.The major developers in the region, namely DLF,Unitech and 3C, are among the earliest and are thekey players with existing marketable IT/ITES SEZstock. Almost all others are at the land stage and arethus unlikely to enter the market before 2012. Atpresent, 5.7 million sq ft of supply is scheduled for

completion by the end of 2011 (Tables 3 and 4). After a year of active occupational interest, SEZ

activity in 2009 remained slow. At 0.7 million sq ft,SEZ absorption in 2009 accounted for 15% of thetotal leasing reported. As a result, quoted rentals inSEZs remained nearly comparable or at a discount tothe non-SEZ IT office rentals in the vicinity. Further,the SEZ rentals in 2009 were nearly 20-25% lowerthan the average transacted price in 2007.

However, as IT SEZ demand triggers in the region havealready started to come through, the existing or nearcompletion projects should benefit in terms of take-up.

Also, with most of these projects located near theexisting activity hubs, they could have a price advantageover their non-SEZ counterparts in the vicinity. Webelieve a major supply glut is unlikely at least until 2012,indicating the possibility of SEZ prices strengtheningduring the period.

Figure 9

Status of approvals and implementation


Table 3

Market summary of IT office space

ParametersIT SEZs(Non-Captive)

IT Non SEZ

Existing Stock (mn sq ft) 4.0 28.8

Vacancy (%) 18% 36%

Supply 2010-11 (mn sq ft) 5.7 17.5

Rentals (INR per sq ft pm) 40-55 40-60

Key IT SEZ Occupiers Bank of America, Accenture, Genpact

Source: DTZ Research

Table 4

Key IT/ITES SEZ projects

IT SEZs (Non-Captive) Location Status

DLF Cyber City SEZ Gurgaon Operational

DLF IT SEZ @ Silokhera Gurgaon Operational

Unitech Infospace Gurgaon Operational

Unitech Infospace Noida Operational

3Cs Oxygen Boulevard Noida Operational


39

23

7

9

6

2

0 10 20 30 40 50

Notified

Formally Approved

Operational

(No. of SEZs)

IT Non IT


9/24

City reviews Bengaluru

www.dtz.com 8

By the end of 2009, 18 SEZ notifications and 15formal approvals (pending notification) had beengranted in Bengaluru. IT/ITES SEZs account formore than 85% of the proposed developments in theregion, with the remainder being biotech and airportbased multiproduct SEZs. Most of the upcomingprojects are located around the existing IT hubs ofthe city, namely Outer Ring Road (Sarjapur/Hebbal)and Whitefield (Figure 10).

Nearly 70% of the notified SEZs have reached thestage of operations, the highest among the key

Indian cities. This can be attributed to the fact thatthe market is guided by a demand led supplyphenomenon, with campus-style/BTS developmentsbeing a key demand driver for SEZs to date. Inaddition, players such as Wipro, HCL and Bioconhave set up private captive facilities.

The supply and demand of SEZs in Bengaluru hasmaintained a healthy balance. At 13.5 million sq ft,the IT SEZ (Non-Captive) stock of Bengaluru iscurrently the highest among the seven key Indiancities. This accounts for nearly 20% of total IT officeinventory in the region. The supply pipeline for thenext two years (2010-11) also indicates a modestaddition. Unlike Delhi NCR, the existing SEZ spacein Bengaluru is interspersed between a number ofdevelopers, including Divyasree, Embassy Group,Prestige Group, Primal group, Gopalan Enterprises,Bagmane Developers and Tanglin Developments(Tables 5 and 6).

A sizable volume of the existing stock is pre-committed by industry players such as Cisco,Accenture and IBM, with only 23% currently lyingvacant. After showing healthy activity in 2007-08, theSEZ take-up slowed during 2009. At 1.35 million sq ft,SEZ absorption still accounted for nearly 30% of the

total absorption reported in 2009. After the budget in2010, the market has again observed an upsurge inoccupational queries.

Despite correcting 20-25% from its peak in 2007-08,there are incidences of SEZs commanding amarginal premium compared with their non-SEZcounterparts in the same micro markets. With marketsentiment turning positive, SEZs appear to be theway forward for many companies looking atexpansion or fresh entry into the market. Also, manycompanies in the region that have enjoyed a 10-yeartax holiday under the STPI scheme are looking for

options and ways to migrate/consolidate within SEZs.With demonstrated execution and precedents ofsuccessful operational SEZs, Bengaluru is likely towitness healthier SEZ growth among the seven keycities of India, in our view.

Figure 10



Table 6

Key IT/ITES SEZ Projects


Manyata Tech Park ORR Hebbal Operational

Divyasree Tech Park Whitefield Operational

Prestige Cessna ORR Sarjapur Operational

Global Axis Whitefield Operational

Global Village Mysore Road Operational

Vrindavan Tech Village ORR Sarjapur Operational

World Tech Centre ORR KR Puram Operational

Pritech SEZ ORR Sarjapur Operational


Table 5



IT Non SEZs


Vacancy (%) 23% 28%

Supply 2010-11 (mn sq ft) 4.0 3.6

Rentals (INR per sq ft pm) 35-45 24 - 55

Key IT SEZ Occupiers Cisco, Accenture, IBM


16

13

11

2

2

1

0 5 10 15 20

Notified

Formally Approved

Operational

(No. of SEZs)

IT Non IT


10/24

City reviews Mumbai

www.dtz.com 9

Over the last two years, the number of notified SEZsin Mumbai has increased to 16, with an additional 15projects currently formally approved (pendingnotification). Compared with other cities, IT/ITEScontributes a relatively low proportion of 60%, withthe remainder accounted for by multiproduct,multiservice and sectors such as biotech,engineering, and gems and jewellery. Due to landpaucity and high land prices in and around GreaterMumbai, most of these SEZs have come up in far-off,peripheral locations such as Navi Mumbai and Thane.Almost all of the proposed developments are non-

captive (Figure 11).

Only three projects are currently operational, ofwhich one is an old EPZ (SEEPZ). On a relativescale, Mumbai is at a nascent stage of SEZdevelopment compared with its counterpart cities,including Delhi NCR. Most of the developments inMumbai have been proposed in remote locations,putting the more conveniently located non-SEZprojects on the preference radar of companies. Thereare incidences of developers seeking SEZdenotification in distantly-located projects.

At 2.1 million sq ft, SEZ stock accounts for 8% of IToffice inventory in Mumbai, the lowest among tier Icities. Limited IT SEZ supply has been created inMumbai through two projects, one developed byHiranandani and the other by K Raheja. The others,including the one in Navi Mumbai which is one of thelargest proposed SEZs in the country, are in proposalstages. We see limited speculative supply in thepipeline for the next two years (Table 7 and 8).

Most of the existing SEZ stock is currently absorbed,of which a significant proportion had been pre-committed in 2007. A sizable development potentialexists in SEZs. However, with sufficient options

available for IT occupation at better locations,demand for SEZs that are located at farther locationsis insignificant at present. With supply closelyfollowing demand, the region is characterised by anegligible supply-demand gap in SEZ space atpresent. SEZ developers in the region prefer to enterinto pre-commitments over adding any speculativeSEZ space.

Quoted SEZ rentals have corrected by nearly 20% inperipheral locations. SEZ rents are lower due tolocation dynamics, rather than an oversupplysituation. However, with a limited supply pipeline, any

demand momentum that is likely post-STPI expirywould strengthen the SEZ prices in the region.

Figure 11



Table 7



IT Non SEZs


Vacancy (%) 5% 23%

Supply 2010-11 (mn sq ft) 0.6 10.3


Key IT SEZ Occupiers TCS, Wipro, Accenture


Table 8



Hiranandanis IT SEZ Powai Operational

Rahejas Mindspace Airoli Operational

Navi Mumbai SEZ Kalamboli Proposed

Royal Palms I Palm Goregaon Proposed


8

11

2

8

4

1

0 5 10 15 20

Notified

Formally Approved

Operational

(No. of SEZs)

IT Non IT


11/24

City reviews Chennai

www.dtz.com 10

By the end of 2009, 37 SEZ notifications and sixformal approvals (pending notification) had beengiven in Chennai, one of the highest in the country.IT/ITES SEZs accounted for a relatively lowerproportion of 58% in these developments, withmanufacturing SEZs creating another major thrust inSEZ space. Electronics, engineering footwear,automotive and logistics (Free Trade WarehousingZones) are some of the sectoral SEZ formatsemerging in the region. However, most of the SEZsare located in suburban/peripheral locations such asManapakkam, OMR and GST, extending further tothe Kancheepuram district (Figure 12).

With 17, or 46%, of the notified SEZs reaching thestage of operations, Chennai currently accounts forthe highest number of operational SEZs among thekey cities. Many of them are manufacturing led orcaptive in nature, either in the form of privatedevelopments or government-promoted (SIPCOT orELCOT) SEZs with land allotted to companies forcampus-style developments. Most of the non-captiveIT SEZs have been proposed in distant locations,

limiting demand viability.

The current IT SEZ stock (non-captive) in Chennai,estimated at 9.6 million sq ft, is heavily contributed toby seven projects, accounting for 25% of total ITspace inventory in the region. Located far from citycentres, many others have either not picked up orhave slowed their construction activity. The proposedsupply addition for the next two years, estimated at2.2 million sq ft, remains conservative(Tables 9 and 10).

Most of the current absorbed stock was pre-committed during 2007-08. Fresh absorption in 2009

remained much lower, at approximately0.5 million sq ft, accounting for 20% of the totalactivity recorded during the year. The demandresponse for more conveniently located projects,such as DLF IT SEZ, has been much healthier.

SEZ prices have corrected by 30-40% from theirpeak in 2007-08. IT SEZs, which took off with a lot ofpositive sentiment in this region, are currently facinga market challenge of location trade off, and arehence limited in their ability to offer an absoluteadvantage to occupiers. SEZ activity in the region islikely to be guided by demand from large-space

occupiers over small enterprises, as the latter preferto be near city centres.

Figure 12



Table 10



DLF IT SEZ Manapakkam Operational

ETL Chennai One Pallikaranai Operational

Shriram Gateway Tambaram Operational

ETA Technopark Navalur, OMR Operational

Mahindra World City GST Operational

E Platinum Navalur, OMR Existing

L&T Estancia Vallenchery Existing


Table 9



IT Non SEZs


Vacancy (%) 34% 27%

Supply 2010-11 (mn sq ft) 2.2 6.6

Rentals (INR per sq ft pm) 28 45 20 40

Key IT SEZ Occupiers TCS, Accenture


22

3

9

15

3

8

0 10 20 30 40 50

Notified

Formally Approved

Operational

(No. of SEZs)

IT Non IT


12/24

City reviews Pune

www.dtz.com 11

The number of notified SEZs in Pune reached 15 in2009, with an additional 18 projects in the formalapproval stages. A sizable 80% is concentrated inthe IT/ITES category, with pharma/biotech,multiproduct and engineering SEZs accounting forthe rest. Most of these projects have come up nearthe established IT corridors, interspersed amonglocations such as Hinjewadi, Hadapsar and Kharadi(Figure 13).

Nearly 65%, or 10, notified projects are currentlyoperational in Pune, including four private captive

developments and one government promoted MIDCSEZ in Hinjewadi. Sizable development in the ITspace in Pune has been guided by SEZ formats, withsome of the earliest IT SEZs of India, such as EON,coming up in this region.

At 7.8 million sq ft, SEZ stock accounts for more than35% of the current IT inventory of Pune. Most of thisspace is being developed by leading regional andnational developers. A modest amount of SEZ spaceis under construction, in addition to nearly 37% ofexisting stock currently lying vacant(Tables 11 and 12).

At 0.3 million sq ft, SEZ absorption in 2009accounted for 15% of the total leasing reportedduring the year. Most of the activity was recorded inthe already-established SEZ in the region, namelyEON. Of the remainder, most of the currentlyabsorbed stock has been an offshoot of the pre-commitments given in 2007-08. Demand activity atpresent is slow.

With substantial supply options available in themarket and a limited demand response triggered byrecessionary conditions, SEZ prices in 2009corrected by 30-40% from their peak in 2007-08. At

present, SEZ prices are marginally at a discount tonon-IT SEZs in the vicinity. The city has taken a leadin the development of SEZ spaces in the country andis poised to offer sufficient options in the near tomedium term to absorb any demand trigger that mayarise due to the expiry of STPI clauses. As the SEZsupply market of Pune has already intensified withsufficient marketable surplus, we believe substantialprice growth is unlikely in the short to medium term,even when SEZs begin to offer an absolute productadvantage.

Figure 13



Table 11



IT Non SEZs


Vacancy (%) 37% 17%

Supply 2010-11 (mn sq ft) 4.5 1.0


Key IT SEZ Occupiers Cognizant, TCS, Accenture


Table 12


IT SEZs (Non-Captive) Location StatusMagarpatta City SEZ Hadapsar Operational

Panchshils EON Kharadi Operational

SP Infocity Hadapsar Operational

DLF Akruti IT SEZ Hinjewadi Operational

Embassy Tech Zone Hinjewadi Operational

Paranjapes Blue Ridge Hinjewadi Under Construction

International Tech Park Hinjewadi Proposed


13

13

9

2

5

1

0 5 10 15 20

Notified

Formally Approved

Operational

(No. of SEZs)

IT Non IT


13/24

City reviews Kolkata

www.dtz.com 12

With 11 notified SEZs and eight formal approvals,Kolkata is lagging its counterparts in SEZdevelopment. IT/ITES accounts for 80% of theprojects in this category. The remainder includessector-specific formats such as leather, electronics,and gems and jewellery. Most of these projects havebeen proposed in Rajarhat or the even fartherperipheral district of Parganas (Figure 14).

Of five operational SEZ projects, three are old SEZs(notified prior to 2005). In the wake of limited demandpotential, DLF recently denotified its SEZ in the

region. Moreover, other than TCS, most of theproposed projects are non-captive in nature.

The market at present is devoid of any competingsupply, with only one IT SEZ option available foroccupation. In the Bantala SEZ developed by MLDalmiya and Co., companies such as Patni,Cognizant and Tech Mahindra have taken up land forcaptive campus-style developments. The pace ofSEZ development is slow because developers havenot foreseen any major occupational demand, andsocial disruptions and land acquisitions issue remaina concern (Tables 13 and 14).

Genpact had pre-committed nearly 0.7 million sq ft in2007 and nearly 0.45 million sq ft of leasing has beenreported in 2009. No other substantial leasing orpre-commitments have been reported in SEZ space.The pace of IT SEZ absorption is linked to the growthof IT activity in the region. Although market activityhas picked up over the last two quarters, we believethe scale and potential for growth is limited tomandate any substantial scaling up of SEZdevelopment in the short to medium term.

Quoted SEZ prices have corrected by 18-20%compared with the peak quoted rentals in 2007-08.

However, SEZ prices are nearly comparable withtheir non-SEZ counterparts in the vicinity. With nosupply competition, prices may exhibit an upwardbias over the next two years. However, we believeany sizable market additions or announcements areunlikely during the period due to limited potential forgrowth in demand for IT space in the region.

Figure 14



Table 13



IT Non SEZs


Vacancy (%) 35% 28%

Supply 2010-11 (mn sq ft) 0.6 7.1


Key IT SEZ Occupiers Capgemini, Genpact, TCS


Table 14



Unitech Infospace Rajarhat Operational

Bantala IT SEZ Parganas Operational


8

7

3

3

1

2

0 5 10 15

Notified

Formally Approved

Operational

(No. of SEZs)

IT Non IT


14/24

City reviews Hyderabad

www.dtz.com 13

With 38 notified SEZs and 14 formal approvals,Hyderabad is next to only Delhi NCR in terms ofpotential development activity. IT/ITES accounts for75 % of the proposed developments, with aviation-led engineering and biotech being the otherprominent formats. Most of the SEZs are coming upin peripheral locations such as Shamshabad,Madhapur and Gachibowli or further inside RangaReddy District, west of Hyderabad (Figure 15).

With nearly 13, or 35%, of notified SEZs reachingthe stage of operations, Hyderabad has been one of

the early entrants in SEZ development. A substantial25% of the notified projects are captive projects ofplayers such as Wipro, CMC, Genpact, Infosys andTCS, along with government agencies such as APIIC(Andhra Pradesh Industrial Investment Corporation)playing a vital role in provisioning SEZ spaces topotential occupiers. The non-captive developmentsare interspersed among players such as L&T,Rahejas, DLF, Tishman Speyer, Divyashree andIndu developers.

Like its other southern counterparts, Hyderabadalready has a sizable SEZ stock, with projects suchas Hitech City and Mindspace operational since 2007.With nearly 8 million sq ft of stock, IT SEZs accountfor 50% of existing IT office inventory. In addition tothe existing space, a modest supply pipeline of 4.7million sq ft is gearing to surface over the next twoyears. Most of the existing SEZs are near existingclusters, some of them also planning to offer smallerfloor plates to accommodate demand from small andmedium-size enterprises (Tables 15 and 16).

Supply is closely following demand. Nearly 90% ofthe existing SEZ stock has been absorbed, a sizableproportion of which had been pre-committed in2007-08. Nearly1.2 million sq ft of absorption was

reported in 2009, which was much lower than thatrecorded in 2007-08.

SEZ prices have corrected by 20% from their peakrentals in 2007-08. With a marketable supply surplusand demand slowdown in the preceding quarters,SEZs are currently being quoted at a discount overnon-SEZs in the vicinity. With sufficient SEZ supplymaturing over the next two years and optionsavailable from multiple developers, the markets arelikely to remain fairly competitive, arresting any majorprice hike even when activity gains momentum.

Figure 15



Table 15



IT Non SEZs


Vacancy (%) 10.3% 26.3%

Supply 2010-11 (mn sq ft) 4.7 1.7


Key IT SEZ Occupiers Cognizant, HCL


Table 16



DLF Cyber City Gachibowli Operational

L&T Hitech City 2 Madhapur Operational

Rahejas Mindspace Madhapur Operational

Tishmans Wave Rock Gachibowli Operational

Divyasrees Orion Raidurga Under Construction

Point Indu Shamshabad Under Construction


31

8

11

7

6

2

0 10 20 30 40 50

Notified

Formally Approved

Operational

(No. of SEZs)

IT Non IT


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Policy review Key issues

www.dtz.com 14

While the recessionary conditions and demanduncertainty have slowed the pace of SEZdevelopment, policy uncertainties, regulatorybottlenecks and operational issues have keptindustry confidence low, triggering exits or dissuadinginvestors and potential incumbents from enteringSEZs in the first place. SEZ regulations are evolvingand few clarifications have already been given.Awaiting judgement, however, are many issues thatare likely to be instrumental in shaping the SEZregime in India, affirming industry confidence,attracting investments, increasing development and

stimulating demand (Figure 16).

Although the SEZ Act contains a lot of grey areas inits current form, DTZ spoke to stakeholders to findout some of the key policy issues facing the industry,measures taken and their implications. The issueshave been addressed from the perspective of twokey stakeholders, developer and unit occupier. Asmost of the SEZ projects are in nascent stages ofdevelopment, we believe, both, supply or demandside inhibitors would be detrimental to the momentumof SEZ growth in India.

Unit-level issues

A. Sunset clause of STPI/EOU

Issue: The STPI/EOU scheme under which thefiscal benefits are currently available to export-oriented IT/manufacturing units has beenextended for the past two years, from itsscheduled expiry in March 2009 to March 2010,then to March 2011. The uncertainty and policyleeway (on account of global recessionary

conditions) have been impeding the developmentpace of and demand pickup at SEZs in India.

Measures taken: By not addressing any furtherextension of the STPI/EOU scheme in the currentbudget (2010), the government has given clearsignals regarding the likely end of the STPI/EOUregime and its full commitment to the growth ofSEZs.

Implications: The STPI/EOU expiry would meana direct demand fillip for SEZs in the short tomedium term, which would then be the only tax

haven for IT/EOU units in India.

DTZ outlook: With SEZs providing an absolutefiscal advantage over alternate space options inIT Parks/Domestic Tariff Area (DTA), both thedevelopment pace and pricing dynamics of SEZscould undergo a major change over the short tomedium term.

B. Transition issues

Issue: To encourage fresh investment, the SEZAct does not permit the transfer of second-hand

capital assets to the SEZ units (permissible limitscapped at 20%), thereby prohibiting any directmigration or relocation of units from STPI/DTA toSEZs. Also, guidelines are not explicit about thetransfer of manpower from existing STPI/DTAs toSEZs. This has created operational issues, withcompanies trying to find loopholes andconsultants advising ways of transition throughthe creation of new legal entities (whichotherwise is not mandated in the SEZ Act; separate books of accounts are sufficient) oradvising migration in phases.

Figure 16

Some of thekey policy issues

(By level of criticality and stage of address)


Low

High

HighLowStage of Address

LevelofCriticality

Provisions of Direct

Tax Code

State Commitment

and Support

Inconsistencies between

SEZ Act and Income Tax

Act

Transition Issues

Sunset Clause of STPI /

EOU

SEZ Financing

Exit Strategy for Developers

Norms for Non-Processing

Zone

Provision for Small Scale

Units


16/24


www.dtz.com 15

Measures taken: As per the recent notification,the units have been allowed to bring in to SEZsas many used/second-hands goods as they want,subject to approval. However, a unit would not beeligible for an income tax holiday (of 15 years)under the Income Tax Act if the ratio of usedequipment exceeds 20% of the overall capitalinvestment.

Implications:It offers only limited relief as mostof the companies evaluate SEZs to avail anincome-tax holiday and other fiscal benefitscontribute only a small proportion of net savings.Any explicit guidance on transition of manpoweris still awaited, which is currently beingbenchmarked against the similar permissiblelimits (20%) as applicable for capital goods.

DTZ outlook:The ruling may encourage thecompanies seeking consolidation spaces toimprove business and operational efficiency to doso through SEZs. Also, it may be lucrative formanufacturing companies as SEZ operationswould offer access to better infrastructure/

working conditions, while entitling them to otherfiscal benefits, such as custom duties and servicetax, which DTA/IT Park may not offer.

C. Small and medium-size IT units

Issue:STPI scheme gives the flexibility to set upa unit anywhere, with no minimum spacerequirement. The minimum land requirement of10 hectares mandated for IT/ITES SEZs, currentfloor space provisions (typically large floor plates)and cost of real estate occupation within non-captive private SEZs is unfavourable for start-ups

as well as small and medium-size enterprises.

Measures taken: The government has instructedIT/ITES SEZs to set up incubators of a minimumsize of 200 seats and earmark a minimum 10%of the space in the SEZs to encourage start-upsand accommodate demand from Small ScaleIndustries (SSI). Also, the developers have beenallowed to lease space in IT/ITES SEZ on a shift-to-shift basis, which means the same spacebeing leased to multiple users.

Implications:The supply character and SEZdemand over the last two years have been driven bylarge IT companies through captive campus-styledevelopments, such as Infosys and Wipro etc, orthrough non-captive BTS style developments,including IBM, Accenture and Cisco, primarily tocater their expansion needs. As developers are nowrequired to accommodate SMEs, they would alsoneed to provision for small floor spaces (smaller floorplates).

DTZ outlook:While the smaller IT spaces/incubationspaces would mean an additional demand fillip fromstart-ups and small entrepreneurs, the developer hasto strike a balance between the product portfolio andtenant mix to maximise overall returns (in the form ofachievable rentals and subsequent tax exemptions)from the activity of development.

D. Inconsistencies between SEZ Act and Income TaxAct

Issues:Under the Income Tax Act, an SEZ unitsupplying to another SEZ unit does not get any

income tax benefit on account of existing definition ofexport, which only includes physical exports outsidethe country. However, such supplies, popularly calleddeemed exports, are counted towards NFEperformance under the SEZ Act.

Measures taken:Under discussion; no action hasbeen taken as yet.

Implications:This does not encourage the ancillaryindustries/vendors/support manufacturers of the mainindustry to house themselves in the SEZ as the SEZunit (vendor) supplying to another SEZ unit (the main

manufacturer) does not get any income tax benefit onaccount of the existing definition of exports under theIncome Tax Act.

DTZ outlook:Once implemented, this would lead toa cluster growth model in India, resulting in thedevelopment of an entire eco-system/value chaincomprising research and development, componentsuppliers, assembly, testing and product delivery,giving a good fillip, especially to the manufacturingSEZs.


17/24


www.dtz.com 16

Developer-level issues

E. State commitment and support

Issues: Developers face inordinate delays intaking approvals from the respective stateauthorities. In many states, there are no enablingprovisions for implementing SEZ projects. Singlewindow clearance has not been practicallyimplemented to date, resulting in inconveniencefor developers as they have to get

approval/clearances from many statedepartments. Also, states have not met theircommitments in providing infrastructure andutilities such as water and power to project sites.

Measures taken: The BOA has suggested thatno new proposal should be submitted by stategovernments that have not put in place thesystem of single-window mechanisms. Also, thestates have been directed to create enablingmechanism for implementing SEZ projects byoperationalising their state level SEZ acts.

Implications: The single-window mechanismwould help to reduce the gestation period of theproject and improve overall business confidencein the SEZ framework. We believe this wouldalso help to trigger investments from serious SEZdevelopers. However, the states commitment tofacilitate enabling infrastructure remains a keyconcern.

DTZ outlook: The sooner the measures taken upby the centre synergise with that of the state, thesooner we could see on-the-groundimplementation of SEZs. At the current pace of

redressal by BOA, we foresee that theambiguities related to the SEZ Act would subsideand a more transparent regime could evolve inthe next two years. Also, during this period, asmore SEZ projects reach the stage of completion,sufficient on-the-ground evidence would beestablished to guide the future activity.

F. SEZ financing

Issues: Low-cost financing options have notbeen available for the development of SEZs.Loans for SEZ development were treated asexposure to the commercial real estate sector.Commercial real estate loans attract nearly 2%higher interest rates than infrastructure loans,and low cost funding options such as ExternalCommercial Borrowing (ECBs) were notpermissible for the development of SEZs.

Measures taken: In 2009, the development ofinfrastructure facilities in SEZs, such as industrialparks, roads, water supplies, power supplies andtelecommunications, excluding the developmentof integrated townships and commercial realestate, were brought under the eligibility net ofinfrastructure lending and ECB funding.

Implications: While we believe the changes arepositive, no immediate gains are visible. With the

project viability of many SEZs being a major risk,financial institutions are channelling funds intomore promising asset classes, such as highways,power projects and bridges. On the other hand,the opening of ECB route is not helping muchdue to the absence of sufficient liquidity and riskaversion in foreign markets since the recession.

DTZ outlook: While the opening of additionalavenues for low-cost funding would augmentdevelopers financial strength to execute SEZprojects, it may take at least 6-8 months towitness gains. The measures would see

developers with insufficient funds but viable SEZprojects taking off in the short to medium term.

G. Norms for non-processing zones

Issue: The guidelines for development anddisposal of infrastructure created in non-processing zones have not been outlined, leavingroom for ambiguity and interpretation. In theabsence of clear guidance, developers haveeither not earmarked any area for non-processing zones or, as in most cases, have notplanned/commenced any activity on it.


18/24


www.dtz.com 17

Measures taken: In 2009, the government cameup with the norms and draft developmentguidelines for building infrastructure in non-processing zones. The guidelines specify anoverall ceiling on land utilization among variousactivities (infrastructure, open spaces andcirculation) and floor space utilization within eachcategory of infrastructure development-residential, commercial and other facilities.Furthermore, it clarifies that the construction of anon-processing zone could be allowed in aphased manner, wherever possible, linked with

the actual level of activities generated in theprocessing area.

Implications: This has reduced the ambiguityabout the utilization pattern and probable phasingof non-processing zones. However, theconformity to overall ceilings has limiteddevelopers flexibility to decide about the productmix as per their own business plans.

DTZ outlook: The clarification and guidancetowards overall physical planning should

encourage more developers to earmark non-processing areas within their projects. Also, itshould provide a thrust toward a balancedproduct mix of components of supportinfrastructure, in line with an integrated/self-sustainable development, rather than adevelopers tendency to maximise value througha focus on a single high-yielding asset.

H. Exit strategy

Issue: The act as it stands today does notprovision for a clear exit strategy for SEZ

developers due to the treatment of land under theSEZ Act. SEZ developers are not allowed to sellany land or built-up space created in the zone(processing as well as non-processing zone); theland or built-up space can only be leased tounits or a co-developer.

Measures taken: The government has permittedthe denotification of SEZ projects (subject tocomplete refund of all exemptions availed todate), thus channelizing an exit at the land stageitself (or pre-operation stage). However, there areno clear provisions to exit from a notified SEZ

after the SEZ has become operational. Thepromoter can dilute its equity only up to 49%;anything beyond this is subject to the priorapproval of the BOA.

Implications: Over the last year, many SEZdevelopers have applied for denotification, citingthe economic slowdown and liquidity crunch asbaseline reasons. We believe such early exitsare helping to remove the glut from the market,leaving in the market only serious players withdefinite intent or the real capability to executethese projects in the medium to long term.

DTZ outlook: A clear but a tighter exit strategywould encourage sizable foreign and domesticinvestments in SEZ projects in the medium tolong term, while ensuring that transfers are madeto entities of comparable or higher order in termsof their net-worth or capability, in our opinion.

Issues common to unit and developer

I. Proposed Direct Tax Code

Issue: The new Direct Tax Code, proposed bythe Ministry of Finance, Government of India, toreplace the Income Tax Act of 1961, discouragesincome tax exemptions to SEZ units, while SEZdevelopers benefits are proposed to be linked toinvestment-based expenditures. Also, there isuncertainty over the availability of DividendDistribution Tax (DDT) and Minimum AlternateTax (MAT) exemptions under the new regime.

Measures taken: The Ministry of Commercecontinues to make assurances that benefitsprescribed by the SEZ Act cannot be withdrawnunder any circumstances, and says that SEZ-related benefits would supersede all other acts ofthe government. We await a concrete decisionthrough a written instruction or clarification.

Implications: The conflicting signals from theMinistry of Finance and the Ministry ofCommerce have taken the SEZ regime intoanother realm of uncertainty. This is resulting infurther delays in the decisions of potentialincumbents or dissuading domestic and foreigninvestors from entering into long-termcommitments through SEZs.

DTZ outlook: The character of a newly-modifiedregime would be instrumental in defining the wayforward for many stakeholders currently in wait-

and-watch mode. While the Direct Tax Code mayhave some implications regarding the structure ofbenefits currently available under the SEZscheme, government assurances and marketsentiment signal to us that the key fiscal benefitswould remain broadly intact.


19/24

Conclusion

www.dtz.com 18

ShortTe

rm

Andhra Pradesh

Karnataka

Tamil Nadu

Maharashtra

Gujarat

Bangalore

Pune

Chennai

Hyderabad

IT/ITES

Electronics Captive SEZs

Leading Regional

Developers

Government

Internal

Accruals

Haryana

Uttar Pradesh

Kerala

Delhi NCR

Mumbai

Kolkata Multiproduct

Pharma

Eng ineering

Foreign Developers

Local Developers

Bank Finance

FDI

MediumT

erm

SEZ Dimensions

Time

Five years since the inception of the SEZ Act, havingtraversed the best and the worst of market shifts, thejourney of Special Economic Zones in India hasentered a second phase. With sufficient developmentpotential in hand and some activity already in place,we believe the time is ripe to capitalise on this newtax haven. While a stable and successful policyregime is still in the making, the risks are moreclearly established than before, which should lead toan arrest in speculative interests.

The states, cities, formats and promoters that havetaken the lead in SEZ market activity to date, amiduncertainties, are set to define the pace and scale ofdevelopment in the short term. We expect a stableand clear policy regime to provide a much-neededimpetus for expanding the contours of SEZs, whichshould see many more geographies, promoters andfunding vehicles emerging and establishingthemselves in the medium to long term (Figure 17).

Figure 17

Expanding contours of SEZs in India



20/24

Definitions

www.dtz.com 19

StockTotal accommodation in the private sector, both occupiedand vacant.

Absorption/Take upFloor space acquired for occupation including thefollowing:1. Offices let to an eventual occupier2. Developments pre-let or sold

Prime rentRepresents the attainable prime rent that could be

expected for a building/unit of the highest quality andspecification in the best location.

VacancyTotal floor space in existing properties (ready for fit-outsand being actively marketed).

New supplyTotal floor space that has reached practical completion(ready-for-fitouts) during the survey period.

Prelet/pre-commitA development leased or sold prior to completion.

Q-o-QQuarter on quarter

Y-o-YYear on year

NCRNational Capital Region

BFSIBanking, Financial Services and Insurance

IT-ITESInformation Technology-Information Technology-enabledServices

BTSBuilt to Suit

SEZSpecial Economic Zone

EPZExport Processing Zones

SPVSpecial Purpose Vehicle

NSEZNoida Export Processing Zone

SEEPZSantacruz Electronics Export Processing Zone

SIPCOTState Industries Promotion Corporation of Tamil Nadu

ELCOTElectronics Corporation of Tamil Nadu Ltd

MIDCMaharashtra Industrial Development Corporation

In-principle approval: Given for the project where land isnot in possession of the developer, only a suitable landsite is identified for developing SEZ. Approval is givenbased upon the financial and management capability ofthe developer/promoter and industrial viability of theproject. The approval is valid for one year within whichsuitable proposal for formal approval has to be submittedwith the state government.

Formal approval: Given only when the promoter has theland (free from all encumbrances) to set up an SEZ.Developers having the land parcels with clear land titlescan also directly file for formal approval. Valid for threeyears within which the developer shall implement theproject.

Notification: Marks the final stage in the SEZ approvalprocess wherein the identified area is granted the statusof a special economic zone for the purpose of allexemptions, drawbacks and concessions. All benefitsunder the SEZ Act are effective only after the SEZ hasbeen notified.

Operational SEZ: According to the current practice, anSEZ is deemed operational even if at least one unit startsexporting goods from the SEZ.

New SEZs: All SEZs that came up in and after 2006 andnotified under the SEZ Act of 2005.

Old SEZs: 19 SEZs which were notified prior to SEZ Actof 2005 (including eight EPZs that were converted intoSEZs)


21/24

Contacts

www.dtz.com 20

Management Team - India

Anshul Jain +91 99993 33900 [email protected]

CEO India

Occupational and Developments Markets

Hugh Hamilton +91 99809 11651 [email protected]

Project Management

David Parsley +91 96322 03377 [email protected]

Investment Advisory

Ambar Maheshwari +91 98200 40025 [email protected]

Press Contact

Divya Pall +91 99990 33480 [email protected]


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DisclaimerThis report should not be relied upon as a basis for entering into transactions withoutseeking specific, qualified, professional advice. Whilst facts have been rigorouslychecked, DTZ can take no responsibility for any damage or loss suffered as a result ofany inadvertent inaccuracy within this report. Information contained herein should not,in whole or part, be published, reproduced or referred to without prior approval. Any

such reproduction should be credited to DTZ.

DTZ June 2010

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