India’s co-working space set to attract $1 billion investment

V Nagarajan

Over the last few years, India’s co-working spaces have gained popularity with start-ups, small and medium enterprises (SMEs) and large corporates. Unlike the traditional business centres, co-working offices offer unique amenities such as a gymnasium, spa, a food court, gaming zones, sleeping pods, creche services etc. These attributes have helped popularise co-working spaces among employees, entrepreneurs and corporates alike. Analysts opine India’s co-working space set to attract $1 billion investment in 2019-20.

According to a study of leasing trends by JLL, reflects the rising proportion of mainstream corporates and established entities from different sectors in the total co-working space leased. Space taken up by the co-working segment has doubled to 3.9 million sq. ft. in 2018 compared with 2017. Cumulative space taken-up by co-working segment from 2017 to 1Q19 is 6.9 million sq. ft. The co-working share in office leasing in the top seven cities of India increased from 5% (2017) to 8% (2018) and this moved up further to 12% in 1Q2019.

Naturally investments have been pouring into this sector. According to JLL estimates, at the end of May 2018, close to $400 million were invested in co-working space. The trend has continued until now. As a result, the flexible workspace segment is likely to attract over $1 billion in investment during FY 201 9-20. The trend is fuelled in part by the sleuth of large enterprises that have started moving into flexible workspace solutions. This has also resulted in commercial real estate markets seeing a larger shift — wherein flexible workspaces account for a larger share of absorption.

Huge investments in the sector are enabling shared space providers to scale up faster by utilising these funds. The scaling up is not only in terms of geographical expansion, but also technological innovation. Besides the top seven cities, co-working operators are venturing into tier 2 cities such as Jaipur, Goa, Chandigarh and Lucknow. It is expected that smaller cities would further see the growth of co-working spaces as they are witnessing a spurt of start-ups and incubation spaces.

Investments have also enabled co-working spaces provide upgraded facilities and amenities that traditional business centres do not offer like a gymnasium, spa, a food court, gaming zones, sleeping pods, crèche services and so on.

Co-working spaces have now moved beyond their initial role of acting as providers of flexible, vibrant workspaces. Today, they are acting as business enablers for start-ups as well as large corporates.

Investors in the sector are enabling shared space providers to scale up faster by utilising these funds for major gains.

Q: I am planning to sell two residential properties owned in Pune jointly with my wife. If we reinvest in a bigger area property, how do we minimise capital gains tax liability? Prakash Mehra, Sharjah.

A: Taking into account that you and your wife have undivided rights and contributed funds for acquisition of the said properties, you and your wife will be liable to pay long-term capital gains tax under the Income Tax Act, 1961, if the said properties are held by you for a period of two years or more before the date of the sale.

The gains are calculated as difference between indexed cost of purchase and sale value. The liability for payment of long-term capital gains tax will depend upon the ratio of holding in both the properties and each one will have to compute individually the liability for payment of long-term capital gains tax. Both of you can avail the deduction under Section 54 on reinvesting the capital gains amount. As per laws, NRIs are subject to a TDS of 20%. Another instance of minimising the tax liability is through investment in capital gain bonds. If both of you sell your properties after three years of purchase and reinvest the proceeds in bonds of National Highways Authority of India and Rural Electrification Corp. of India within six months of sale, they will be exempt from paying capital gains tax. The bonds are going to be locked in for a period of three years.

Q: Is plot loan available for NRIs to invest in land in India?  How can such a loan be repaid while employed abroad? Please clarify. Mukul Goel, Dubai.

A: NRIs/PIOs can avail of loans for plots from an authorised dealer or housing finance institution subject to prescribed terms and conditions.  Normally the rate of interest for plot loans is marginally higher than for housing purposes.  Such a loan can be repaid (a) by way of inward remittance through normal banking channel or (b) by debit to his NRE/FCNR (B) / NRO account or (c) by the borrower’s close relatives, as defined in Section 6 of the Companies Act, 1956, through their account in India by crediting the borrower’s loan account.