V Nagarajan

The warehousing industry in India is undergoing an unprecedented transformation from a mere provider of storage space into a modern day warehousing hub similar to the ones in developed countries.

Over the past few years, there has already been a gradual transition in the mindset of occupiers to use the services offered by organised segments. This change in mindset was further accentuated with the implementation of the Goods and Services Tax (GST).

Private equity (PE) investors have invested over $7.3 billion in India’s warehousing industry in the previous decade with 77% of the investments going towards creating new assets. Of this, investments worth $5.6 billion which went into new development is expected to create over 300 million sq ft of warehousing space, according to a recent survey by Knight Frank India.

The COVID-19 induced lockdown has slowed down the leasing activity in warehousing segments. However, new trends have emerged which can give a significant fillip to the demand for warehousing space and make it attractive for investors.

To drive the growth of the warehousing industry, the government has implemented reforms such as GST and granting infrastructure status to the logistics industry including warehousing. The investments worth $57 million during the first five months of 2020 is negligible compared to the investment of $1.5 billion during the same time period last year.

There are not many mature warehousing assets available in India as compared to office and retail assets. The high cap rates in 2011 was on account of low investor interest, dearth of mature good quality assets, unorganised structure of the industry, poor demand to use the services offered by the organised segments and lack of impetus from policymakers to support the growth of the industry. However, as the years progressed things started to fall in place and the cap rates compressed.

The forecasted slowdown of India’s Gross Domestic Product (GDP) in 2020 due to the COVID-19 induced lockdown will affect businesses across the board and reduce their aggregate demand for warehouses. However, certain new trends are likely to emerge which will drive warehousing growth in the coming years.

E-commerce segments catering to grocery and daily essentials have seen a spurt in retail demand owing to the COVID-19 induced lockdown of malls and retail spaces.

For standardised products like electronics, the common fear amongst consumers of buying a product from an e-commerce website vs. purchasing offline, has reduced over the years.

With e-commerce is becoming pervasive, the concept of multistorey warehouses is slowly gaining traction in densely populated and landlocked cities. However, due to high cost of land in cities, it is very difficult to get the model right and the resultant high rentals are a major deterrent to occupiers.

Warehousing industry is also likely to benefit from the shift in manufacturing units outside China. While there are 5-6 countries which are competing directly with India to attract these industries, each country has its own set of advantages and challenges. However, even if 1/6th of them come to India, the gains for the nation and warehousing sector would be immense.

I sold my vacant land in Ahmedabad recently, which was bought a decade ago. Is the gain taxable in India and what are options to get exemption from tax liability? Please guide us. Debtosh, Sharjah.

For Non Resident Indians (NRIs), capital gains are taxable in India and considered as short-term when it is held for less than 24 months.  However, if the property has been held for more than 24 months they are considered as long-term capital gains.  

In order to avoid capital gains, the new unit must be purchased either one year before or two years after the date of transfer. In case of construction, it should be done within three years from the date of transfer.  

If you wish to seek exemption on capital gains, you can invest in capital gains bonds.  

My sister, who is also an NRI, wants to gift her share to me pertaining to ancestral property situated in Mumbai, India. Whether option is ideal, gift or Will? Please advise us. Kashyap, Dubai.

It is assumed that you and your brother are the owners of the property.  If he bequeaths under a Will, the bequest shall take effect only on his demise and it may get challenged by his legal heirs.

If it is transferred under a gift deed, it has to be duly stamped and registered with the sub-registrar of assurances and signed by two witnesses. It is advisable to opt for gifting of the property by a registered deed.