Guidelines get stringent for real estate activity in SEZs

Written by Rituparna Bhuyan | New Delhi | Updated: Aug 5 2009, 06:03am hrs
The government has tightened norms for development of apartments, malls and other real estate activity inside special economic zones. The commerce ministry has released guidelines on development activity in non-processing area of SEZs, which limits area that can be used for housing and commercial construction. The new rules also make it mandatory for developers to maintain some amount of open space in large and medium-sized zones.

A circular by the commerce ministry says the board of approval on SEZs will now approve construction activity in the non-processing area on a case-by-case basis, depending on factors such as area of the SEZ, distribution pattern between processing and non-processing area, available floor-area ratio and projected employee strength. Experts say the move is aimed at curbing unreasonable profiteering from real estate development in the zones.

In any SEZ, half of the area has to be earmarked for core industrial activity, while the rest non-processing area can be used for building schools, hospitals, residential flats, malls and other commercial establishments. However, there were no set norms that specified how much area could be used for commercial purposes in the non-processing area. The new norms are aimed at the large multi-product, middle-sized sector-specific and small infotech zones.

According to the new guidelines, in a 1,000-hectare, multi-product zone, a maximum area of 25,00,000 square metres would be allowed for residential constructions. For commercial activities like hotels, malls and shopping arcades, a maximum area of 12,00,000 square metres would be allowed. Area for developing social infrastructure such as hospitals, schools and colleges has also been capped at 12,00,000 square metres in multi-product zones.

Thus, commercial and social infrastructure can be built on 55 % of the non-processing area of a multi-product zone, while about 20 % of the non-processing area would have to be maintained as open space.

A similar pattern is also specified for sector-specific zones, which are less than 1,000 hectares.

For small zones housing information technology units, which are typically of about 10 hectares, the limit for building residential constructions has been capped at 60% of the non-processing area. The maximum area for commercial constructions in such SEZs is 15 %, while the remaining would be for social infrastructure.

The new norms mean that SEZ developers would now have to follow set guidelines while developing non-industrial infrastructure inside SEZs. This move seems to be aimed at ensuring that there is no real estate play involved while constructing the SEZs that are meant for manufacturing activity and exports, said SEZ expert Hitender Mehta of Vaish Associates. The EGoM on SEZs had approved development rules for non-processing area of the zones in October 2008.