In March 2011, the central government ended the Software Technology Parks of India (STPI) scheme, which extended incentives and tax holidays to IT companies.
As a result, the last three years have seen an exodus of sorts with smaller IT firms (now forced to pay taxes up to 30 per cent) quitting the scene. This means that several buildings and IT parks built along the OMR during the scheme are now lying vacant.
Realty consultancy Knight Frank estimates about 4 million sq. ft of vacant space along the OMR, indicating vacancy levels of 18 to 20 per cent.
Builders believe that these vacant spaces can be converted into income-generating buildings. “Allowing these spaces to be used by non-IT commercial units could be a solution. During the STPI scheme, builders were allowed higher FSIs (floor space index) and given permission to build high-rises if they were for IT/ITES use.
These were incentives given to them to build high quality buildings even when the construction costs were higher than those for commercial or residential spaces,” says R. Kumar, Navins Housing.
Although the government is allowing the buildings to be converted for other commercial use, it is demanding a fee towards the extra FSI. “In Mumbai, builders were given similar extra FSI in erstwhile IT buildings but when there were no takers, the government took away the extra fee for conversion. The spaces were absorbed by the banking and finance sector. That could work here too,” says Prakash Challa, SSPDL. As of now, the rent for IT buildings that lie before the toll gate (from Taramani to Perungudi) is around Rs. 40 per sq. ft, while beyond Perungudi, rentals range from Rs. 22 to Rs. 30 per sq. ft.
One of the other proposals from the government is to allow these spaces to be converted into Special Economic Zones, which it says could ease the pressure off developers. However, P.B Balaji, Chennai-based real estate lawyer, questions the move. “Such a conversion would fall under the Special Economic Zone Act, which comes with a large number of specifications, which most of these IT buildings will be unable to fulfil. The process would take even longer than waiting for the IT industry to revive, if at all,” explains.
When neighbouring Hyderabad and Bangalore have attracted multi-million dollar office absorption from non-IT firms such as Deloitte and Flipkart, developers are asking why Chennai is lagging behind. “The government has mooted a ‘financial city’ with new buildings to attract non-IT investment, but won’t converting these large vacant spaces be ideal instead?” asks Kumar. “It will bring in a lot of income to the State and the benefits will also be passed on to the residential sector on OMR,” he points out.
Ashwin Kamdar, CMD, Prince Foundation, has a different view: “I don’t believe this is a solution. The other sectors are not in great shape either and this would only cause oversupply again. The IT buildings have large floor plates of 40,000 sq.ft or more, which is more than what most commercial companies are looking for. Apart from commercial use, I suggest demolishing them and converting them into residential spaces. IT buildings work on return on investment (RoI), and the prevailing Rs. 20 per sq. ft post-toll gate can only yield Rs. 2,800 per sq. ft whereas residential spaces sell for Rs. 6,000 per sq. ft, which is more viable than waiting for an IT revival.”
Either way, it is time the government came up with a viable and practical way to use the huge developments that are lying vacant on OMR.
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