Dotcoms Face Ground Realities

The dotcom juggernaut has hit another speed breaker. And this time it's the turn of landlords and real estate agents to sound the warning signals. Property dealers across the country are turning the heat on dotcom companies by refusing to lease out space. Consider the ground realities: lIn Bangalore, according to an assessment by Colliers Jardine, as many as 13 dotcom companies have defaulted on their rental agreements. They were unable to pay the rent even after one year. This is because venture capital funds are not ready to provide the second round of funding. lIn Mumbai, landowners are refusing to rent out space to dotcom start-ups and those who have not put in an equity capital of over Rs 1 crore. lIn most metros like Delhi, Mumbai and Bangalore, landlords are taking a premium from dotcom companies ranging from Rs 5 to Rs 10 for every square foot they take on rent. Says Colliers Jardine managing director Akshaya Kumar: "In all metros, landlords are increasingly becoming concerned about the financial background of the dotcom companies before renting out their properties. They are not easily giving dotcoms space for rent." He said his clients were asking for details of the venture capital fund associated with the dotcom, long-term revenue plan and viability. The owners also ensure whether the venture capitalists are ready to fund the company further. Landlords in Mumbai, Banga-lore and Delhi, who, just a few months ago were chasing dotcom companies to rent out their property, are changing tracks. They are now charging a premium. Sunil Agarwal, head-research & consulting group, Chesterton Meghraj says: "It is not that dotcoms are not getting space but they are no longer preferred clients. They are able to get space but have to pay a premium or a larger security deposits". For instance, normal security deposit demanded from corporates in Mumbai is a three month rent in advance. However, dotcom companies are being asked to pay double the security amount. Worse is the situation in Mumbai where still cautious landlords are going to the extent of scrutinising the balance sheets of the corporates before they take a decision to rent out to dotcoms. The rule is dotcoms with equity capital of less than Rs 1 crore are being told a big 'no'. The reason is simple: under the prevailing law in Mumbai, companies with a share capital of less than Rs 1 crore do not fall under the Rent Control Act, a law which the protects landlords. "The dotcom sector is, however, a small segment as far as real estate transactions are concerned. Only one out of 10 infotech companies are dotcoms and their space requirement is not very significant in comparison to software development companies or brick & mortar companies," Jones Lang Lasalle, senior manager (consultancy & valuation services), Ankur Srivastava, said.