Latest SEZ Notification: Floor-Wise Denotification to Boost Developer Revenues

Key Takeaways:

• Introduction of floor-wise denotification in SEZs provides relief for developers and REITs with office spaces, addressing vacancy issues predominantly present in the SEZ portfolio.
• The change is anticipated to increase the overall occupancy for the combined portfolio to the mid-90s, up from the previous level of around 89-90%.
• The flexibility to designate portions of SEZs as non-SEZ is expected to attract more companies to occupy the vacant areas within SEZs, thereby reducing the overall vacancy rates.
• Higher occupancy levels are likely to lead to increased revenues and dividends for listed REITs and developers with substantial commercial portfolios.

Latest SEZ Notification and Its Impact on Developers

The latest SEZ notification introduces a significant change in the classification of Special Economic Zones (SEZs) by allowing floor-wise denotification. This means that within a building, individual floors can now be classified as either SEZ or non-SEZ, as opposed to the previous practice where the entire building was designated as either SEZ or non-SEZ. This change is expected to have a positive impact on developers and companies operating within these zones.

Key Changes and Impact

1. Floor-Wise Classification: The new regulation allows for the independent classification of floors within a building as SEZ or non-SEZ. Previously, the entire building had to be designated as either SEZ or non-SEZ, leading to challenges in leasing out space, especially when only a portion of the building was occupied by export-oriented units seeking SEZ benefits.

2. Relief for Developers and REITs: The floor-wise denotification provides a significant relief for developers and Real Estate Investment Trusts (REITs) with office spaces, as it addresses the vacancy issues that were predominantly present in the SEZ portfolio. This change is particularly beneficial for listed developers and REITs, as it helps in optimizing the utilization of office spaces within SEZs.

3. Occupancy Levels and Revenues: Prior to the notification, the SEZ portfolio had a high vacancy rate of 87-88%, significantly impacting the overall occupancy levels. With the ability to designate portions of SEZs as non-SEZ, it is anticipated that the combined portfolio’s occupancy will increase to the mid-90s. This increase in occupancy is expected to lead to higher revenues and dividends for listed REITs and developers with substantial commercial portfolios.

4. Reduction in Vacancy Levels: The change is likely to reduce the vacancy levels in SEZ units, as companies that do not require the tax benefits associated with SEZs can now be classified as non-SEZ. This flexibility is expected to attract more companies to occupy the vacant areas within SEZs, thereby reducing the overall vacancy rates.

Expectations for Occupancy Levels and Revenues

Anuj Puri, Chairman of ANAROCK Group, anticipates that the overall occupancy for the combined portfolio will increase to the mid-90s, up from the previous level of around 89-90%. This increase in occupancy is expected to have a positive impact on the revenues and dividends generated from the listed REITs and developers with significant commercial portfolios.

In summary, the latest SEZ notification’s floor-wise denotification is poised to alleviate vacancy challenges, boost occupancy levels, and enhance the revenue potential for developers and REITs operating within SEZs.

FAQ

Q1: What is the primary change introduced by the latest SEZ notification?

A1: The latest SEZ notification allows for floor-wise denotification, enabling individual floors within a building to be classified as either SEZ or non-SEZ, as opposed to the previous practice where the entire building had to be designated as either SEZ or non-SEZ.

Q2: How will the floor-wise denotification impact occupancy levels within SEZs?

A2: The change is expected to increase the overall occupancy for the combined portfolio to the mid-90s, up from the previous level of around 89-90%, thereby alleviating vacancy challenges and boosting developer revenues.

Q3: What are the anticipated benefits for developers and REITs as a result of this notification?

A3: The flexibility provided by floor-wise denotification is expected to attract more companies to occupy the vacant areas within SEZs, leading to increased revenues and dividends for listed REITs and developers with substantial commercial portfolios.