E-commerce companies Flipkart, amazon

As we all know that e-commerce industry is changing the way of traditional shopping and helping the Indian economy to grow. Online shopping has given a fresh lease of  life to hundreds of land owners because leading e-commerce companies are planning to buy the land to build their own warehouses. But earlier it was not possible due to tight FDI policies for multi-brand retail business. Amazon, the American online retail giant has announced the war chest of $2 billion for India when Flipkart raised $1 billion in a fresh round of funding. All the leading e-commerce companies have begun a massive hunt for warehousing facilities in all over the country.

One side Amazon is planning to lease more than million square feet of warehousing space in current year to set-up fulfillment centers and other side Flipkart has recently leased 500,000 square feet of warehousing space across the country and it is expected that these warehouse facilities will commission before November 2015. According to one of property consultant who has knowledge about Flipkart’s plans, “To kill the competition Flipkart wants to gear up its supply chain before Diwali rush, however it is also equivalent of the Christmas sale season in the US when players like Amazon do a big chunk of their business”. All major Indian online retailers have already sounded out property consultants for their plan to lease 2 million sq ft of warehouses before the Diwali of current year. It is expected that these space will be leased by April 2015 and will be ready for operation by July 2015, just before festive season, as per the statement of consultant.

The recent policy on FDI in multi-brand retail didn’t find many takers and eventually it became a non-starter because of stiff local sourcing and upfront investment norms. In December 2014, Amazon had announced that they are going to set-up five more fulfillments in all over India including Delhi, Chennai, Jaipur, Ahmedabad and outskirts of Gurgaon to cover Noida. Currently, they have existing facilities in the outskirts of Mumbai and Bangalore, it has almost doubled its total storage capacity to over half million square feet. According to property experts, Amazon has already leased more than 250,000 sq ft of space in Bhiwandi near Mumbai and 16,000 sq ft of warehousing space in Delhi’s Mohan Cooperative. And now Amazon is looking for more space in other part of country.

Plan of Amazon, Snapdeal and Flipkart for their warehouses:

An official spokeswoman of Amazon said, “According to our company policy, we never comment on what we may or may not do in the future. CBRE which did the Mohan Cooperative deal declined to comment, whereas; JLL, which did the Bhiwandi deal too declined to comment”. But the property consultant quoted before few months that Amazon is looking at warehousing space in Chennai, Hyderabad, Ahmedabad, Jaipur, Ludhiana, and another one in the NCR near Gurgaon.

According to Rohit Bansal, the co-founder and chief operating officer (CEO) of Snapdeal.com, “We are looking at building 500,000 sq ft of warehousing space in the next one year”.

Flipkart is also looking for new space in new cities such as; Ahmedabad, Chennai Hyderabad and Kochi to expand its presence through warehouse facilities. Finding quality warehousing space, however, is a tough task, especially if companies are looking outside of the NCR and Mumbai towards smaller centers.

According to Nirav Kothary, Head in Industrial Services Department at property consultancy JLL, “Real estate developers in Mumbai and NCR have matured enough and are building warehouses with specifications matching international company requirements and now they are ready to catch-up in other cities”. The cities such as; Hyderabad, Jaipur, Lucknow, Bangalore, Chennai and others the bulk of the large deals are for built-to-suit warehouses, stated Anckur Srivasttava, chairman of GenReal Property Advisers who is working with few of the online retailers to lock-in space.

According to the estimate of real estate experts, about 70 per cent of the investment by these ecommerce companies are going to set-up the back-end infrastructure which will include the warehouse and logistics facilities.

Pinning their hopes on the Modi government at the centre to relax the proposed norms, real estate developers have been buying more land from farmers over the past year than usual because of apprehension that the new law may raise cost of land acquisition.

“Companies have been buying land in their catchment areas as they fear that the land acquisition bill will make it more expensive and tedious to buy land in the future,” said Amit Goenka, chief executive officer of private equity fund Nisus Finance, which is currently working with developers in Mumbai, Pune and Bangalore to fund large land purchases.

The land acquisition bill that was passed last year but is yet to come into force proposes to double the compensation for acquisition of land in urban areas while land acquired in rural areas will entail four times compensation. The clause mandating consent of 80% of land owners for a private project will delay the process of acquiring land and further increase project costs for developers.

“The new bill could raise prices of land in key areas where we want to operate and build projects. We had been acquiring land in the area for the last few years but we have increased the pace of acquisition in the last eight months,” said RK Arora, managing director of Supertech who has acquired three different land parcels around Gurgaon totalling about 350 acres over the past year.

The rural development ministry is likely to suggest relaxation of norms including scrapping of the mandatory consent provision for public-private partnership or PPP projects and scaling it down in the case of private projects from 80% to 50%. There will be a lot of speculation and there won’t be any price control, which will eventually push up property prices,” said Shyam Sundar Pani, president of industry body Global Initiative for Restructuring Environment and Management.

Real estate developer Chintels, which has large landholdings in and around Gurgaon, has acquired about 150 acres of land in the last one year. “There is certainly a concern around the new land acquisition bill,” said Prashant Solomon, managing director of Chintels. “There is certainly a concern around the new land acquisition bill, “said Prashant Solomon, managing director of Chintels. Anckur Srivasttava, chairman of GenReal Property Advisers said that while the impact of the bill on commercial and residential real estate would be visible across the country it would be considerably higher in states such as Uttar Pradesh where land is acquired and allotted by the government. “The bigger impact, however, will be felt in industrial real estate for companies and for the infrastructure sector,” he said.

Even as optimism has returned in the sector with the installation of the new government at the Centre, an increase in cost of land acquisition could dampen sentiment. Several developers have therefore been raising money from private equity funds as well as non-banking financial companies to buy land in different parts of the country. “Land acquisition will be a huge challenge once the bill is finalized”, say real estate developers who have seen home sales drop drastically over the past two years as property prices rose in a slowing economy. Developers are hoping that the government will dilute some of the provisions of the bill as it is reportedly considering.