The recent government decision to revise Special Economic Zone rules and permit floor-wise denotification is anticipated to boost occupancy levels in commercial space and office buildings for real estate firms.
In a gazette Notification issued on Wednesday, the government communicated changes to SEZ regulations, allowing developers in Information Technology (IT) and IT-enabled services (ITeS) SEZs to repurpose vacant spaces like domestic tariff areas (DTAs) for non-IT and ITeS purposes, subject to board approval and specific conditions.
Previously, denotification was allowed building-wise, leading to significant portions of SEZs remaining unoccupied. The amendment to the SEZ Rules 2006 now specifies that a segment of the SEZ can be designated a ‘non-processing area’, exempting it from SEZ rules of taxation.
This non-processing area provides real estate players with the opportunity to utilize additional spaces without the burden of various compliance requirements.
Read More about the SEZ Amendment in the detailed Article at: Amended SEZ Rule denies Tax Benefits to These Services/Sectors: Here’s All You Need to Know
Prominent commercial real estate firms such as DLF Ltd, Brookfield India Real Estate Trust Ltd, and Embassy Office Parks REIT gained attention following the SEZ rule amendments. DLF’s shares surged to a 52-week high of ₹663.9 apiece on BSE, with the company expressing anticipation for the release of SEZ guidelines.
Brigade Enterprises also experienced an uptick in shares, reaching ₹853.1 apiece on BSE, attributing the positive movement to the recent government amendments.
Ambit Capital viewed the SEZ rule amendment as a favorable development for India’s commercial real estate sector, citing a 17% average vacancy rate in October 2023. The brokerage notes that the flexibility introduced by the changes allows Real Estate Investment Trusts (REITs) to cater to a broader customer base, potentially improving occupancy rates and rental yields.
Morgan Stanley predicts a rise in the share price of Embassy Office Parks REIT relative to the index over the next 60 days, anticipating quicker leasing of SEZ areas due to the new regulations. Brookfield India Real Estate Trust Ltd’s shares also experienced an increase, reaching ₹254 apiece on BSE, reflecting optimism surrounding the revised SEZ rules.
However, Brigade Enterprises’ shares traded slightly lower at ₹823.15 apiece on BSE, while Embassy Office Parks REIT saw a 1.82% increase, reaching ₹324.78 apiece on BSE. DLF Ltd’s shares were trading at ₹646 apiece on BSE, showing a marginal decline.
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