The IT sector in India has changed the commercial and social scenario here. The emergence of the real estate sector has grown enormously in the recent times particularly in the commercial sector. As the commercial real estate has grown tremendously and it has led to growth in a city or city location as retail, residential and hospitality projects are planned around commercial areas around the country. Human resource availability, quality of the project, political stability, location, infrastructure of the city and operational costs are some of the factors which are important for the end user. Real estate is kept as one of the key category by the companies as it belongs to the high cost category. Human resource planning, financial planning and operational factors are all associated with it.
The company has to consider several factors such as physical proximity tosocial infrastructure like housing, digital connectivity, energy factors,better designs and service specifications while choosing a location. The selection of the development depends on the quality of the project. Quality consists of basic construction quality, design efficiencies, infrastructure like power load and car parking, effective use of IT in running the project, saving in energy and the delivery of the project. The qualitative and quantitative analysis determines the suitability, acceptability and feasibility of a project. Apart from the pricing a number of other factors have also to be objectively analyzed.
The quality and delivery ofthe project is affected by cost cutting which results due to rising cost. The costsof construction ranges from between Rs. 2250 – 2500 per sq ft to Rs 3000 per sqft. Time for completion vary according to the project. The delivery of the project also varies due to other factors like availability of labor, plant and machinery plus various statutory approvals. Deciding upon the location is one of the main factors for a company that is trying to enlarge or start its operation.
The markets in the peripheral areas of the city have become moreprominent as the central and suburban regions in tier 1 cities face lowersupply. Tier 2 and 3 cities are becoming the alternate destinations for commercial activity as the operational costs is comparatively low in those cities. The cost of land in the periphery areas are much lower compared to sites closer to or in the heart of the city. Hence the regions in the periphery of around 75km from the centre of metros are more affordable for real estate option than the central or suburban ones.
Whitefield and Outer Ring Road in Bangalore, Madhapur in Hyderabad andOld Mahabalipuram Road in Chennai are the areas where some activities aretaking place. Expanding in the peripheral region also has some demerits such as high costs of transportation, lack of suitable infrastructure and unwillingness of employees to work there. Huge developments are taking place in the peripheral areas as most of the new developing projects are coming up in those areas such as residential townships, shopping malls and other kinds of social infrastructure.
Peripheral locations are usually preferred by large companies as they can bring together their facilities in the form of a campus and thereby create their own environment. Integrated townships that are scheduled to be set up in these locations, such as Bidadi in Bangalore and Chennai’s Mahindra World City are expected to influence the real estate market in a remarkable manner in future.
There are several factors due to which small cities are considered such as cost benefit and availability of talent. Some of the cost benefits are lesser cost of real estate, lower cost of living, anchor tenant opportunities and less transportation costs. They are also supported and boosted by the government to reduce the pressure from metropolitan cities where infrastructure is inadequate and they offer free land and incentives to them. Smaller cities are having fresh talent pool. But they also have to face large scale issues like connectivity to main cities, entertainment areas and cultural problems, quality of transportation, roads and high quality infrastructure. City selection is not only the important part of the location selection as the corporate requirements also have other specifications that need to be fulfilled.
Non IT sectors like Banking and Marketingprefer city centres or suburbs depending upon the availability and costs. Requirement of large space is one of the main reasons which limit the IT companies to peripheral or suburban locations. Office development projects occupy a huge space in IT Parks. But it is altogether a different story from the point of view of end users.
Real Estate prospects are dominated by SEZ’s nowadays as they enjoy a favorable position due to several reasons some of these are financial benefits that lower the operating costs, good industrial and civic infrastructure, labor norms that are flexible and also government priority. In most of the Non-SEZ IT parks the tax benefits extended in the STPI schemes are uncertain. Over 70% of the year’s projected supply that furnishes to the IT/ITeS sector is formed by IT Parks and SEZ’s except Mumbai where Banking, Financial services and Insurance sectors are the main areas of growth. Location of the IT Parks in the major areas of the city also makes them preferable as they save the cost of transporting employees and give a good working environment. Small and medium sized companies also prefer to be located in certain parts of the city as they gain no benefit by being in a SEZ.
The tax benefits of the STPI scheme may beexpanded in the coming budget and if it does not happen then the SEZs will bepreferred as the substituted option by the companies. SEZs are in varied formssuch as multi-product, sector specific and product specific, multi – productSEZs are the largest where size is concerned. They may have companies from any industry as long as they are oriented to export. Sector specific SEZs may contain a group of companies of any particular industry like Telecom, IT and IteS. Product specific SEZs include companies which have their own SEZ or developers who want to keep multiple tenants. Those that want to have their own SEZ usually develop a campus and apply independently for a status of SEZ. Most SEZs are located in the peripheral or suburban parts of the city as large portion of land required by SEZs are scarce in the city.
Suburban sector or product specific SEZs areusually multi-tenanted. Multiple tenants may receive offers of attractivepackages for developments offering space and these could be the reason of the futuregrowth of the company and also offer anchor tenant opportunities. This option is ideal for developing companies as the developments usually take 2-3 years to be completed. Since, privately owned land require a large amount of investment initially, setting up own campus can be costly so the multinational companies go for leasing space unless land is offered in Industrial parks promoted by the government at subsidized rates.
High transportation cost for employees, no suitable social infrastructure like quality housing and issues connected with HR like higher attrition rates are some of the short and medium term problems that may be faced by SEZs. Some of the problems may be solved in the long term due to large volume of real estate development, especially residential that will take place because of these SEZs. From the user point of view the present trend seems to be in favor of SEZs, but prime projects may be stronger in terms of location.
India is likely to witness a huge developmentin the next few decades and the economy in smaller towns, cities and ruralsector is also likely to boom due to the positive flow in retail sourcing. As the educational and societal levels have been elevated soon India will become a nation with numerous opportunities and it is also likely to grow fast if the developments takes place successfully.
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