Revealed: How we performed a comprehensive Valuation of a Property within a Special Economic Zone(SEZ)

A Software/IT company had a land parcel at SEZ(Special Economic Zone) with specific benefits of consumption of FSI (Floor Space Index) within a speculated course of time.  

1. The company has consumed very less FSI in comparison to the potential/ benefits of FSI approved by SEZ.
2. Timelines for consuming the benefits of FSI approved by SEZ have lapsed.
3. There are many other land parcels available at SEZ with the benefits of FSI.
4. Allotted land should be used for Software/IT exports only.
5. Developed Valuation of a Property cannot be rented/sold if not developed allotment of land stands canceled by SEZ. 

How do we arrive at the value of existing developed property (Land & Building)?

After several discussions held internally, we managed to conduct the exercise & provide the value of the assets. We also ensured that the assets are correctly valued.  Our response to the question that arose was as follows:

• We have arrived at the value of land based on FSI-based valuation considering total available/potential FSI over its less lapsed FSI area which gives us an exact value of land with its consumed FSI.
• The value of the building was arrived at by cost approach as developed property cannot be rented/sold.

Also Read, Valuation of a partially-constructed Thermal Power Plant

FAQs:

1. What is a Special Economic Zone (SEZ)?

A Special Economic Zone (SEZ) is a designated area within a country that offers business-friendly laws, tax benefits, and regulatory exemptions to attract investment and boost economic activity.

2. Why is property valuation within SEZs different from regular properties?

SEZ properties involve unique considerations such as government policies, tax incentives, export-oriented usage, and compliance with SEZ Authority guidelines, making the valuation more complex.

3. What factors are considered in SEZ property valuation?

Key factors include land lease terms, built-up area, infrastructure, usage restrictions, SEZ-specific benefits, and proximity to logistics hubs like ports or industrial corridors.

4. Who conducts property valuations in SEZs in India?

Valuations are typically carried out by IBBI-registered valuers with expertise in land and building or plant and machinery, especially familiar with SEZ regulations and compliance norms.

5. How does SEZ status affect the market value of a property?

SEZ status can enhance property value due to fiscal incentives and infrastructure advantages, but also impose restrictions on use and transfer, which must be factored into the valuation.