Mumbai: Real estate developers in Mumbai are preparing to bid for several redevelopment schemes that the Maharashtra government is planning in the city.
Top developers such as Unitech Ltd, DB Realty Ltd, Ackruti City Ltd and Orbit Corp. Ltd are eyeing the projects, which typically do not need much capital but fetch high returns.
The state government wants to build one million budget homes over the next few years, mostly with private developers and primarily through redevelopment schemes. This will involve removing slums and pulling down old, dilapidated buildings mostly to make way for glitzy skyscrapers, while rehousing the displaced people in new buildings alongside.
“There are about 20 more redevelopment schemes which the government is planning to launch in central and south Mumbai (both prime locations) in addition to the existing ones,” Sachin Ahir, state housing minister, told Mint on Tuesday. “In south Mumbai alone, about 100 acres of land will be available, which is a big opportunity because there is hardly any free land in such prime areas.”
Property costs in central Mumbai areas such as Lower Parel and Parel hover at Rs18,000-22,000 per sq. ft, depending on the project. In south Mumbai, the rates run up to about Rs50,000 per sq. ft.
Gaining ground: The 96-acre Government Colony in Bandra is being redeveloped by Ackruti and DB Realty. Ashesh Shah/Mint
The developers don’t just get access to prime land, they are also given additional construction rights, or FSI (floor space index), as an incentive to take up the projects.
“The benefits are many. The project locations are prime, developers get more FSI and are not risky because of the longer gestation period,” said Ashutosh Limaye, associate director, strategic consulting, Jones Lang La Salle Meghraj, a property advisory.
It is difficult to estimate the total investment in these projects but property analysts say the future of the Mumbai real estate market largely rests on redevelopment.
Brokerage Anand Rathi Financial Services Ltd says in a March report that Unitech, the country’s second-largest developer, expects to construct four to five million sq. ft of space in Mumbai every year—all of it in redevelopment.
Unitech has invested around Rs850 crore in joint ventures for redevelopment projects in the city and will invest another Rs200 crore, Anand Rathi said.
In return, the firm will get five million sq. ft of “free sale” space, which the management expects will add 20-25% to Unitech’s revenue over two years, the brokerage said.
Unitech wouldn’t comment as it is in a so-called “silent period” ahead of its quarterly results.
Another realty firm, Ackruti City, has at least 40% of its portfolio dedicated to redevelopment projects. Among them is the 96-acre redevelopment scheme of the Government Colony in Bandra (East).
“The opportunities in redevelopment projects have opened up only recently but better late than never,” said Vimal Shah, managing director of Ackruti City.
The Bandra project, which will be developed with DB Realty, will see an investment of at least Rs5,000 crore.
The redevelopment bonanza has triggered a debate with urban planners and civic activists in Mumbai arguing against them.
They say the city’s development control regulations (DCR) are being tweaked indiscriminately for redevelopment schemes, some of which include constructing public parking spaces and revamping government colonies.
“With these redevelopment projects, the government is sanctioning densification through increased FSI without supporting infrastructure,” said urban activist Cyrus Guzder. “Such projects have enormous economic gain.”
Ahir agrees development sanctions in Mumbai are erratic, without a proper masterplan. “We are creating new local development policies for such projects,” he said.
The business opportunities from the redevelopment schemes have attracted private equity funds as well.
“We are looking at some proposals of some city-centric properties. Under the land constraints, this is the best option,” said Ramesh Jogani, chief executive, Indiareit Fund Advisors Pvt. Ltd.