The Hindu Business Line : Defaults feared as IT vacancy levels rise

The Confederation of Real Estate Developers Association of India (CREDAI), Tamil Nadu chapter, has expressed concern over the high levels of vacancy in IT buildings, which could lead to defaults unless the State Government relaxes some of the norms concerning these projects.

According to Mr Prakash Challa, President, CREDAI – Tamil Nadu, over 5 million sq.ft of IT space is lying vacant because of the slowdown in demand from IT companies. This has hit the developers severely who do not have an option to let it out to other market segments.

IT building developers were allowed to construct 50 per cent more area in a given land area — Floor Space Index — as compared to other categories as an incentive to get more IT space.

But now, with the slowdown, the developers are seeking permission from the State Government to let out the space to others.

Opening it to non-IT segments

In a representation to the State Government on Friday, CREDAI-TN has asked the Tamil Nadu Government to allow the developers to let out the normal FSI for non-IT segments and the additional area may be earmarked for the use of IT and ITES segments up to March 31, 2010, when the STPI (Software Technology Parks of India) scheme ends. Later, this space too could be released for non-IT use after payment of a one-time fee.

In the absence of revenue from the vacant IT space, loan defaults could mount as the developers face statutory payments in the form of property tax and demand load charges for High Tension power connections from the Tamil Nadu Electricity Board.

On the power charges, according to CREDAI-TN, typically for a 4.78 lakh sq.ft IT building the maximum power requirement is 9,010 KVA with the first phase load of 5,000 KVA.

The demand charge at the rate of Rs 300 per KVA amounting to Rs 13.5 lakh a month (0.9 X 5,000 X 300) plus 5 per cent tax has to be paid to the Tamil Nadu Electricity Board even if the building is unoccupied and power consumption negligible.

‘Refund caution deposit’

CREDAI-TN has also asked the State Government to refund the caution deposit collected by the Chennai Metropolitan Development Authority, which amounts to over 10 per cent of the guideline value of the land or 20 per cent of the guideline value of the land area equal to the additional floor area availed of by the developer, whichever is higher.

For a building area of about 4,000 sq.m, the deposit is about Rs 1.18 crore.

Normally the deposit would be refunded after five years after complete occupation and start of commercial operation of the IT building when it has been exclusively occupied for IT or bioinformatics use as certified by the Electronics Corporation of Tamil Nadu.

However, under the market conditions the developers are unable to get IT users to take up the space or for the developers to meet the conditions for refund. So they have sought immediate refund of the caution deposit.

According to CREDAI, IT developers say that the IT buildings could be derecognised under the STPI, which enables IT building developers and occupants to avail of concessions under the Customs and Excise Duties.

They have letters from the STPI authorities to exit from the STPI scheme.

The concessions in Customs and Excise could be withdrawn and the building debonded by the authorities concerned.

More Stories on : Real Estate & Construction | Infrastructure | Tamil Nadu

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page