Tata’s unusual deal with UDA; free 8-acre land with trade-offs
In an unconventional deal, India’s Tata Housing, the real estate arm of the Tata Group and a wholly-owned subsidiary of Tata Sons this week launched a US$ 400 million mixed development project in Slave Island Colombo,
The project is in collaboration with the Urban Development Authority (UDA) as a major township rejuvenation initiative, at the same time resettling shanty dwellers in the area in improved housing units.
The unusual deal is made of an agreement between the UDA and Tata Housing to hand over an 8-acre block of land to the former on a 99-year lease “free of charge” bordering the former Education Department site to the North, Malay Street to the East, Justice Akbar Street to the South and the railway line to the West, officials said. Developments of this nature in the past have normally been on a lease rental basis.
Tata Housing secured the deal without any evaluation because of their high credentials although three more companies had submitted their bids, UDA chairman Nimal Perera said at the ceremonial inauguration of the project.
The Indian company will get the land with no lease payment and in exchange has agreed to bear the full cost of building a fully-fledged housing complex on a 3-acre block of land (in the same property) for displaced residents, he told the Business Times separately.
The land value in the area ranges from Rs. 7 million to Rs. 9 million per perch with the average value being around Rs. 8 million, an official of the Valuation Department who wished to remain anonymous, told the Business Times.
Accordingly the total value of 8 acres is in the region of Rs. 10.3 billion and the minimum value of the 99-year land lease would be around Rs. 5 billion, he added. According to the agreement, the housing complex will house 582 families and 100 shop owners who were displaced by the project. This first stage of the innovative project is to be completed within two years.
The total cost for providing alternate housing/commercial units including rental payments for temporary accommodation of the families is estimated to be about Rs. 5,874 million, a senior official said, adding that the cost of building the housing complex for residents has not been estimated as yet.
The total cost of building the housing complex and for providing the house rental of displaced residents for 30 months in other locations till the completion of the housing complex will be borne by the Indian company, Mr. Perera disclosed.
However both Mr. Perera and TATA Housing chief Brotin Banerjee declined to divulge the total cost as the project is still at the initial stage.
All residents who had lost land and houses will get equal or bigger housing in the new housing complex, Mr. Perera said.
The agreement provides a win-win situation for UDA Tata Housing and all house owners who have given their consent for the project. A resident who had dwelling from 200 to 400 square feet would get a 400 square feet house; those between 400 to 600 will get a 600 square feet house, going up to 1,200 square feet, he revealed.
Speaking to the Business Times, Mr. Banerjee noted that the company will seek strategic investment project status with tax concessions and they will sign a MOU with the Board of Investment towards this end.
During the 30-month construction period of the housing complex, the Indian company will pay a monthly rent allowance to displaced residents ranging from Rs. 15,000 rupees to Rs. 52,000 based on the floor area they were occupying, he disclosed.
Mr. Banerjee said in the mixed development project that will come up in the balance 5 acres of land, a high end development has been planned. It will have a 150-room city hotel, 1.1 million square feet of residential apartments, 530,000 square feet of commercial space and 115,000 square feet of retail space. Approximately 1,100,000 sq. ft. will be set apart for residential use and four residential towers (each tower consisting of 36 floors) will be built he added.
Around 650 residential units comprising of one, two, three, four bedroom units and duplex/pent houses will also be built and 530,000 sq. ft. will be allocated for commercial purposes.
Premium retail shopping including Apparel/ Departmental stores/ Health & Beauty care/ Multiplex/ Food Courts/ Restaurants, etc will be constructed.
Mr. Banerjee expressed the belief that his company would be able to gain returns for their investments as it has conducted a thorough feasibility study of the project and Sri Lanka’s future potential in real estate development.
He noted that TATA is a leading company in India and it has fully examined the future economic potential of Sri Lanka before embarking on this project.
“Tata Housing clearly understands the opportunity for long term and sustained growth in the Sri Lankan housing market. And it is making this huge investment indicating our strong ties with our neighbours and urban renewal within prime locations of the country.”
He assured that the Sri Lankan government would get world class infrastructure aligned to growth needs of the economy generating 1500 employment opportunities.
The redevelopment of this land area is aimed at helping the government’s plan of implementing several projects in the city of Colombo to create opportunities for urban investments and housing development.