Surat railway station redevelopment project a non-starter

Mamuni Das New Delhi | Updated on December 05, 2019

Consumer preference for buying rather than leasing real estate dampens enthusiasm of developers

Indian Railways’ attempt to get private investment for station redevelopment — specifically for Surat multi-modal project — has again failed to find takers.

The terms of the project, estimated at around ₹1,000 crore, will have to be reworked, following a lack of interest from investors, said a source aware of the project details.

Local (consumer) preference for buying instead of leasing real estate space may have played a role in the cold response Railways got from developers.

Last year, the government had sweetened the terms for attracting private investors for modernising railway stations: in October 2018 — the Union Cabinet approved a proposal allowing an increase in leasing tenure of railway stations to 99 years, more than doubling it from the earlier 45 years.

Specifically for the multi-modal station project in Surat, a city in Gujarat known for diamond trade and textiles, the government increased the number of years for which a commercial property could be leased. Also, the Indian Railways also allowed 40 per cent more area for commercial development, 80 lakh sq ft from 56 lakh sq ft earlier, apart from giving the developer longer time for commercial development.

For instance, the government’s special purpose vehicle (SPV) Surat Integrated Transport Development Corporation (SITCO) had slashed its expectations in the form of revenue share that it would have got from the station developer – to 35 per cent from 50 per cent.

SITCO was a company in which Central Government (Indian Railways), State government (Gujarat State Road Transport Corporation) and local government (Surat Municipal Corporation) had pooled their land for the project.

However, project was not feasible given the local conditions. “It was not conducive to develop the station in present parameters. For instance, in Surat, people do not believe in leasing property even if the lease is for 99 years. They believe in buying,” said one of the stakeholders aware of the project.

Higher FSI

Moreover, the higher FSI without any extra charges also did not yield much for investors. “Surat is a tier-2 city. So, there may not be demand for high buildings of 20 storeys, unlike in tier-1 cities where much taller buildings can be sold,” added the source.

Recently, Ministry of Railways had constituted a Group of Secretaries for development of railway stations to world class standards, Railway Minister Piyush Goyal stated in Parliament on December 20, according to an official release. The Group has to finalise the bidding process, documents and contract agreements required for station development. The Group also has to monitor the bidding process and to take decisions to ensure the award of projects in a time bound manner. It’s not clear whether the Surat project norms will also have to be reconsidered in the light of cold response from private players.

Indian Railways – through Indian Railway Station Development Corporation – is modernising stations to improve the quality of service and raise revenue from commercial ventures. It is developing Habibganj (near Bhopal in Madhya Pradesh) and Gandhinagar stations.

Rail Land Development Authority, which was handed over 75 sites to generate revenue through commercial development on long term lease basis, has earned ₹846 crore till October in present fiscal (2019-20), according to data shared in Parliament by the Railway Minister.

Published on December 05, 2019

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