1 commercial exploitation of railway land under property developement. --- a case study by j sv rama...

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COMMERCIAL EXPLOITATION OF RAILWAY LAND UNDER PROPERTY DEVELOPEMENT.

--- A CASE STUDY

BY J SV RAMA RAO.

A K GUPTA. S K BASHA. GUIDED

BY S H RI R K YADAV, PT 2

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INTRODUCTION

INDIAN RAILWAYS HAVE 43,000 HECTARS OF VACANT LAND AGAINST THE TOTAL AREA OF 4.23 LAKHH HECTARS OF LAND UNDER VARIOUS USESES LIKE TRACK,STATIONS,COLONIES ETC.

GOVERNMENT OF INDIA, WHILE APPROVING IX PLAN DOCUMENT DECIDED THAT RAILWAY CAN RAISE NON-TARIF RESOURCES BY COMMERCIAL UTILISATION OF RAILWAY LAND/ AIR SPACE.

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INTRODUCTION CONTD ---

INDIAN RAILWAYS HAVE ACQUIRED VAST LAND ACROSS THE LENGTH AND BREADTH OF COUNTRY FOR LAYING THE TRACK AND PROVIDING INFRASTRUCTURE FACITILIES FOR THE TRNSPORT OF PUBLIC AND GOODS.

ENGG. DEPT FEELS PROUD TO SHOULDER THE RESPONSIBILITY OF SAFE CUSTODY AND MANAGEMENT OF LAND.

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INTRODUCTION CONTD ---

IN ORDER TO GENERATE THE FUNDS BY EFFECTIVE UTILISATION OF INTERNAL RESOURCES,RAILWAY BOARD HAD EMPHASISED HIGH PRIORITY ACCORDED TO PROPERTY DEVELOPMENT.

IN ACCORDENCE WITH THE POLICY GUIDE LINES ISSUED BY THE RAILWAY BOARD,ONE SITE OF AREA 13,200 SQM AT OLD GODAVARY STATION NEAR RAJHAMUNDRY ON SC RAILWAY HAS BEEN IDENTIFIED AND FINALISED.

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METHODOLOGY FOR EXECUTION OF THE SCHEME.

CATEGORY OF PROPERTY DEVELOPMENT CASES.

CATEGORY I – COMMERCIAL DEVELOPMENT OF

STATIONS NEEDING RE-BUILDING/RE-MODELLING,A PART OF THE DEVELOPMENT TO BE DONE AT RAILWAYS COST.

CATEGORY II – THE FOUNDATION FOR MULTI

STORIED COMPLEX EXIST AND ONE/TWO FLOORS HAVE ALREADY BEEN CONSTRUCTED.

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METHODOLOGY CONTI----

CATEGORY III – THE BUILT UP FLOOR SPACE IS ALREADY

AVAILABLE AND PROPERTY CAN BE READILY

MARKETED. CATEGORY IV – THE MEGA DEVELOPMENT IN MAJOR

STATION WHERE THE PROPOSAL IS TO DEVELOP LARGE STATION CUM COMMERCIAL COMPLEX. CATEGORY V – THE VACANT PLOT NOT CONNECTED WITH

THE EXISTING RAILWAY OPERATIONS.

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METHODOLOGY CONTI---

THE SCHEME FINALISED BY SCR “AT OLD GODAVARY STATION NEAR RAJHAMUNDRY’’ FALLS UNDER CATEGORY V.

SITES HAVING AREA EXCEEDING 1000 SQM REQURING BOARD’S PRIOR APPROVAL AS PER THE PROCEDURE LAID DOWN IN RAILWAY BOARD’S LR.NO. 2000/LML/2/58 DT 1-2-2001.

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METHODOLOGY CONTI---

ACTION AT DIVISIONAL LEVEL.

STANDING COMMITTEE CONSISTING OF Sr.DEN/CO, Sr.DAO, Sr.DCM WOULD LOOK INTO THE VARIOUS ASPECTS OF PROPOSAL FOR PROPERTY DEVELOPMENT SUCH AS ---

IDENTIFICATION OF LAND/PLOT,

IT’S SURPLUSNESS AND UTILITY ,

IN CONVENIENCE CAUSED TO RAILWAY RESIDENTS/COMMERCIAL COMMUTERS,

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ACTION AT DIVISIONAL LEVEL CONTI---

ASSESSEMENT OF COMMERCIAL POTENTIAL,

PRESENT MARKET VALUE OF THE LAND AND ROUGH ASESSEMENT OF

EARNINGS FROM THE PROPOSAL,

PROPOSAL TOGETHER WITH THE DIVISONAL COMMITTEE’S REPORT SHOULD BE CONCURRED BY ASSOCIATE FINANCE AND APPROVED BY DRM BEFORE IT IS SUBMITTED TO HEADQUARTERS.

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ACTION AT HEADQUARTERS CONTI---

A STANDING APPRECIATION COMMITTEE OF THREE SAG OFFICERS CONSISTING OF CGE,FA&CAO AND CCM (PS) WOULD EXAMINE

THE PROPOSAL RECEIVED FROM THE DIVISION.THE COMMITTEE GIVE THEIR APPRECIATION ON DIVISIONAL PROPOSAL. THE PROPOSAL SHOULD BE CONCURRED BY

FA&CAO AND APPROVED BY GM FOR REFERING IT TO RAILWAY BOARD FOR CONSIDERATION AND APPROVAL.

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RAILWAY BOARD APPROVAL CONTI---

RAILWAY BOARD CONVEYED ‘IN PRINCIPLE’

APPROVAL FOR THE PROPERTY DEVELOPMENT AND APPOINTED M/s IRCON AS THE NODAL AGENCY AND ENTRUSTED THE PLANNING,DESIGN,CONSTRUCTION AND

MARKETING WORKS.

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MARKET SURVEY CONTI---

IRCON INTURN ENGAGED M/s CHESTERSON MEGHRAJ INTERNATIONAL PROPERTY CONSULTANTS,NEWDELHI, FOR MARKET STUDY.

IRCON HAS PROPOSED THE FOLLOWING MECHANISM IN THEIR REPORT.

i) SCENARIO 1 : IT IS BASED ON THE ASSUMPTION THAT THE SITE IS A FREE HOLD PROPERTY AND TITLE SHALL BE TRANSFERRED ON THE NAME OF DEVELOPER/END USER.

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II) SCENARIO 2 : IT IS BASED ON ASSUMPTION THAT THE SITE SHALL BE LEASED TO DEVELOPER/BUYER AND THIS IMPLIES RESTRICTED TITLE TO THE END-USER(60 YEARS LEASE).

SCENARAIO 1 IS FOR OUTRIGHT SALE WHICH SHALL BE DIFFICULT TO ACCEPT AS POLICY OF THE BOARD IS TO GO FOR LONGTERM LEASE. WITH THE ABOVE SCENARIO THE ‘MODES’ PROPOSED IN THE REPORT ARE AS BELOW.

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i) MODE 1 : JOINT VENTURE INVOLVING REVENUE SHARING AS PER THE INSVEMENT IN THE PROJECT BY THE RAILWAYS AND THE DEVELOPER. ii) MODE 2 : JOINT VENTURE INVOLVING REVENUE SHARING WITH THE DEVELOPER GETTING

A MINIMUM RETURN ON INVESTMENT, OF

30%. iii) MODE 3 : OUTRIGHT SALE WITH UP-FRONT PAMENT.

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AS PER THE STUDY REPORT, THE CONSTRUCTION OF THE PROJECT IS PLANNED TO COMPLETE WITHIN 3 YEARS. THE SUBJECT SITE IS PROPOSED TO BE DIVIDED INTO 4 PARTS FOR DEVELOPMENT SUCH AS RETAIL/COMMERCIAL COMPLEX,RESIDENTIAL FLATS AND INDEPENDENT HOUSE PLOTS IN A TOTAL SITE AREA OF 13,735 SQM WITH BUILT UP AREA OF 8,786 SQM.

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RAILWAY’S RECOMMENDATIONS AND BOARD’S APPROVAL

THIS RAILWAY RECOMMENDED SCENARAIO -2 ,MODE

3 i.e LONG LEASE UP-FRONT PAYMENT WHERE IN BUYERS

SHALL ONLY GET LEASEHOLD RIGHT FOR 60 YEARS. AS PER THE FINAL REPORT, RAILWAYS SHALL BE

ABLE TO REALIZE Rs.150 LAKHS FROM THE SITE AS PER THE ABOVE

SCENRAIO AND MODE.

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RAILWAY’S RECOMMENDATIONS AND BOARD’S APPROVAL

CONTI---

RAILWAY BOARD APPROVED THE STUDY REPORT SUBMITTED BY M/s IRCON WITH THE RAIL WAYS PREFFERED OPTION OF “LEASE OF RAILWAYLAND

FOR 60 YEARS AGAINST PAYMENT OF LEASE MONEY UP-

FRONT’’ AND ALSO ADVISED RAILWAYS TO INITATE IRCON TO

GO HEAD WITH THE TENDER PROCESS.

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TENDERING PROCESS

IRCON HAS FLOATED OPEN TENDERS UNDER TWO PACKAGE SYSTEM.

FOUR OFFERS RECEIVED. THE TECHNICAL BIDS WERE OPENED AND

THE SAME WERE EVALUATED. SUBSEQUENTLY THE FINANCIAL BIDS WERE

OPENED.

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TENDERING PROCESS CONTI---

IRCON HAS RECOMMENDED TO ACCEPT THE HIGHEST BID OF Rs. 1,75,00,000/- OFFERED BY HIGHEST BIDDER. AS PER OPTION III AS DEFINED IN TENDER DOCUMENT, THE BIDDER HAS TO PAY THE AMOUNT IN 5 EQUAL INSTALLMENTS OF Rs. 35,00,000/- EACH PAYABLE WITH IN ONE MONTH, 6MONTHS,12 MONTHS,18 MONTHS AND 24 MONTHS.

FURTHER TO THE ABOVE REFFERED PREMIUM,LEASE CHARGES AT Rs.2/- PER SQM PER MONTH ESCALATED AT 5% PER ANNUM IS PAYABLE TO RAILWAYS.

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HOW TO DEAL WITH FINANCIAL BIDS

AS PER THE LETTER NO. LML/2000//2/58 DT 1-2-2001, GM IS EMPOWERED TO ACCEPT PROPERTY DEVELOPMENT BIDS UP TO Rs. 8 CRORES IN CONSULTATION WITH FA&CAO.

TWO NOMINATED SAG OFFICERS FROM FINANCE AND ENGINEERING BRANCHES GIVE THEIR APPRECIATION ON PSU’S RECOMMENDATIONS FOR CONSIDERATION OF ACCEPTING AUTHORITY.

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REASONABLENESS OF FINANCIAL BID

THE ESTIMATED /PROJECTED RECEIVABLE AMOUNT

AS PER SCENARIO 2 &MODE 3 IS Rs.150 LAKHS. IN COMPARISION, THE PRICE QUOTED BY H-1 IS

Rs, 175 LAKHS WHICH IS 16.6% HIGHER THAN THE

PROJECTED COST. THE REPORT WAS ACCEPTED BY RAILWAY

BOARD.

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CONDITIONS OF CONTRACT

DEFINITIONS

a) THE “LESSOR’’ MEANS THE PRESIDENT OF INDIA ACTING THROUGH GENERAL MANEGER,SCR OR ANY OTHER OFFFICER AUTHORISED BY GM /SCR.

b) THE “DEVELOPER’’ MEANS THE SUCCESSFUL BIDDER WHO HAS BEEN ACCEPTED BEING THE HIGHEST EVALUATED OFFER,DEPOSITED THE AGREED AMOUNT OF PREMIUM FOR DEVELOPMENT RIGHTS OR THE FIRST INSTALLMENT OF PREMIUM WITH THE BANK GUARANTEE(S) FOR FUTURE INSTALLMENTS OF PREMIUM AND AS SIGNED “AGREEMENT TO DEVELOP” WITH LESSOR.

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CONDITIONS OF CONTRACT CONTI---

c) THE “LESSEE’’ MEANS THE PERSON WHO HAS BEEN ALLOTTED ANY PART OF THE DEVELOPED ACCOMODATION BY LESSOR.

d) THE “SUB - LESSEE’’ MEANS THE PERSON WHO

HAS BEEN ALLOTTED ANY PART OF THE DEVELOPED ACCOMODATION BY THE LESSEE.

e) THE “PREMIUM SCHEDULE” MEANS THE

SCHEDULE OF PAYMENT OF PREMIUM FORMING PART OF THE BID.

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f) THE “AGREEMENT TO DEVELOP’’ MEANS THE

AGREEMENT ENTERED INTO BETWEEN THE LESSOR AND THE DEVELOPER FOR HOLDING VACANT LAND AS LICENSEE DURING THE PERIOD OF DEVELOPMENT WITH AN UNDERSTANDING TO ENTER INTO LONG-TERM LEASE THERE AFTER.

g) THE “LEASE AGREEMENT’’ MEANS THE AGREEMENT ENTERED INTO BETWEEN THE LESSOR AND THE LESSEE FOR LONG TERM LEASE OF DEVELOPED SPACE FOR A PERIOD OF 60 YEARS.

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h) THE “PREMIUM FOR DEVELOPMENT RIGHTS’’ MEANS THE PREMIUM PAYABLE TO THE LESSOR BY THE DEVELOPER UNDER THE AGREEMENT TO DEVELOP, FOR FULL AND PROPER PERFORMANCE OF ITS CONTRACTUAL OBLIGATIONS.

i) THE “COMMENCEMENT DATE’’ MEANS ANY DATE WITHIN 30 DAYS FROM THE DATE OF NOTIFICATION OF AWARD TO THE DEVELOPER.

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CONDITIONS OF CONTRACT CONTI-

j) THE DEVELOPER SHALL OBTAIN ALL MUNCIPAL CLEARANCES AND PERMISSIONS REQUIRED FOR THE PROJECT.THE LESSOR SHALL SIGN THE PLANS PREPARED AND SUBMITTED BY THE DEVELOPER SUBJECT TO THE DEVELOPER INDEMNIFYING THE LESSOR AGAINST ANY LOSSES/DAMAGES BECAUSE OF DEFAULT IN LAYOUT/DESIGN/CONSTRUCTION.

k) THE DEVELOPER SHALL ARRANGE FOR TOTALLY INDEPENDENT SYSTEMS FOR WATER SUPPLY,SEWERAGE AND POWER SUPPLY INCLUDING FIRE PROTECTION,POLLUTION CONTROL ETC.

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l) THE DEVELOPER SHALL PAY THE LESSOR THE AMOUNT OF THE PREMIUM AS AGREED AT THE TIME OF ACCEPTANCE OF ITS BID.

m) THE DEVELOPER SHALL EXECUTE THE AGREEMENT TO DEVELOP WITH THE LESSOR WITH IN 30 DAYS OF PAYMENT OF FULL PREMIUM OR FIRST INSTALMENT OF PREMIUM ALONG WITH NECESSARY BANK GUARANTEES AS THE CASE MAY BE.

n) THE CONSTRUCTION WOULD STRICTLY BE DONE IN ACCORDENCE WITH THE SANCTIONED PLANS.

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o) THE DEVELOPER SHALL COMPLETE ALL CONSTRUCTION/DEVELOPMENT WITHIN 36 MONTHS OF THE DATE OF ISSUE OF NOTIFICATION OF AWARD,WHICH CAN BE EXTENDED FOR A FURTHER PERIOD OF UP TO 12 MONTHS TO COVER ANY DELAY NOT ATTRIBUTABLE TO THE DEVELOPER.

p) IF THE DEVELOPER DOES NOT COMMENCE CONSTRUCTION AT SITE AS PER AGREED SCHEDULE WITH IN 30 DAYS OF RECEIVING ALL REQUIRED APPROVALS, THE LESSOR HAS THE SOLE AND UNCONDITIONAL AUTHORITY TO REVOKE THE AGREEMENT TO DEVELOP AT THE RISK,COST AND EXPENSE OF THE DEVELOPER.

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q) THE DEVELOPER WILL ON COMPLETION OF THE CONSTRUCTION,PREPARE AND SUBMIT THREE COPIES OF “AS BUILT” DRAWINGS OF THE BUILDINGS WITH ELETRICAL,SANITARY AND PLUMBING WORK DULY CERTIFIED BY IT’S PROJECT/APPOINTED ARCHITECT AND CD CONTAINING THESE DRAWINGS.

r) THE DEVELOPER IN ITS SOLE DISCRETION MAY REALIZE FROM THE PROSPECTIVE LESSEE SUCH PREMIUM AT SUCH RATE AND AMOUNT AS MAY BE DECIDED BY THE DEVELOPER. SUCH PREMIUM SHALL BE THE ABSOLUTE PROPERTY OF THE DEVELOPER WITHOUT ANY INTERFERENCE AND CLAIM FROM THE LESSOR WHAT SO EVER.

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s) THE LESSOR SHALL ALWAYS REMAIN THE OWNER OF THE PROPERTY SO DEVELOPED (THE LAND AND THE STRUCTURE) BY THE DEVELOPER. AFTER COMPLETION OF THE PROJECT BY THE DEVELOPER AT ITS OWN COST, THE PROPERTY SHALL VEST WITH THE LESSOR ABSOLUTELY FREE FROM ALL ENCUMBRANCES AND FOREVER AND NO ONE SHALL HAVE ANY LIEN FOR COSTS,CHARGES AND EXPENSES ON THE SAME. BUT THE LESSOR BY VIRTUE OF ITS OWNERSHIP OF THE PREMISES WILL NOT IN ANY WAY ENCROACH UPON ALLOTMENT RIGHT OF THE DEVELOPER TO LEASE THE PREMISES. UNALLOTED PREMISES SHALL BE CONSTRUED AS ALLOTIED TO THE DEVELOPER.

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t) THE PROSPECTIVE LESSEES ARE TO BE SELECTED BY THE DEVELOPER ON TERMS AND CONDITIONS EMBODIED IN THE LEASE AGREEMENT . THE DETAILS OF SUCH PROPOSED LESSEES (EXCEPT THE FINANCIAL ARRANGEMENT BETWEEN THE DEVELOPER AND THE LESSEE) SHALL BE FURNISHED FOR ACCEPTANCE OF THE LESSOR. SUCH ACCEPTANCE WILL NOT BE UNREASONABLY WITHHELD AND WILL BE NOTIFIED WITH IN A PERIOD OF 30 DAYS OF SUBMISSION OF THE DETAILS BY THE DEVELOPER.

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u) THE DEVELOPER WILL NOT BE ENTITLED TO ENTER INTO AN AGREEMENT WITH LESSEE FOR ALLOTMENT OF SPACE FOR ANY PERIOD BEYOND THE PERIOD MENTIONED IN THE CONTRACT.

v) THE DEVELOPER /LESSEE/SUB-LESSEE SHALL AFTER THE EXPIRY OF THE PERIOD OF LEASE AGREEMENT SHALL HAND-OVER THE PEACEFUL POSSESSION OF THE SAID BUILDINGS TOGETHER WITH ALL INSTALLATIONS TO THE LESSOR.

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CONCLUSION

THUS THE WASTE LAND LYING VACANT HAS BEEN EFFECTIVELY UTILISED TO EARN REVENUE FOR THE RAILWAYS AS…

RS. 1.75 CRORES AS AN UP – FRONT AMOUNT. APART FROM THE ABOVE, LEASE CHARGES OF

RS.3,30,000/- PER ANNUM WITH AN ESCALATION @ 5% PER YEAR.

POSESSION OF THE LAND ALONG WITH THE DEVELOPED STRUCTURES AFTER COMPLETION OF THE 60 YEARS LEASE PERIOD.

PROTECTION OF THE LAND AGAINST ENCROACHMENTS.

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1 commercial exploitation of railway land under property developement. --- a case study by j sv rama...

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