Bangalore: Besides building Signature Island, an expensive residential project in the Bandra-Kurla Complex business district in Mumbai, Sunteck Realty Ltd will also redevelop a slum in the financial capital.
Revamping shanties: Life goes on in Mumbai’s Dharavi slum. Encouraged by government support and easier norms, several developers plan to bid for a portion of the Rs15,000 crore Dharavi slum redevelopment project. Madhu Kapparath / Mint
The developer has no experience in redeveloping shanty towns, but took a calculated risk in November when it entered into a joint development agreement with a local builder familiar with such projects.
The local partner identified a slum for the project and is responsible for getting the consent of the residents and the state authority’s nod for it. Sunteck will handle the cash required and the construction.
The firm is among at least 10 large- and mid-sized developers making maiden attempts at redeveloping slums—projects considered lucrative and yet not capital-intensive to begin with.
With greenfield developments becoming more difficult and land deals turning scarce during the economic downturn, developers say slum projects offer a way to access prime properties in Mumbai with clear titles, while avoiding large investments in land.
“There is limited potential for development otherwise in Mumbai,” said V.K. Phatak, former chief town planner with the Mumbai Metropolitan Region Development Authority. “It has also become easier than before to develop them because of the help offered by the government.”
In these projects, private firms build free tenements for slum dwellers in exchange for being allowed to construct other projects in the area that can be sold at market prices.
“The return on investments gets magnified in slum redevelopment projects and we would look at them in a joint development format because the initial, difficult process is made easy with a partner around,” said Kamal Khetan, managing director of Sunteck.
Another realty firm, Neptune Developers Pvt. Ltd, which has filed for raising funds through an initial public offering (IPO), is also considering slum projects. It will bid for a portion of the Rs15,000 crore Dharavi slum redevelopment project, the largest such in Mumbai, said a senior company executive.
HCC Real Estate Ltd, a subsidiary of infrastructure firm HCC Ltd, is planning two slum projects in the city—a 50-acre land in suburban Mumbai and a 1 million sq. ft development near the Indian Institute of Technology, Powai campus, the firm’s president, Rajgopal Nogja, said.
“The reasons are simple. Entry capital is cheaper, cost of clear land is way too steep in Mumbai, and returns are better in such projects,” said Ramesh Jogani, managing director and chief executive (CEO) of Indiareit Fund Advisors Pvt. Ltd, a private equity fund promoted by Piramal Group. Indiareit is close to investing Rs20-30 crore in two slum redevelopment projects in the city.
The Maharashtra government has paced up clearances and slum projects stuck during the economic crisis are being revived. Around 450 slum projects are going on in Mumbai, involving 250,000 homes. The Union and state governments are aiming for a slum-free Mumbai by 2015.
“There is a clutch of new developers who are sending in proposals for slum projects, particularly after the floor space index (FSI) was raised to 3, from 2.5 in such ventures last year,” said S.S. Zhende, CEO of the Slum Rehabilitation Authority (SRA). With higher FSIs, firms get additional construction rights for development.
Zhende also credits the high-power committee formed last year to settle disputes between slum developers and authorities for making the projects more attractive to developers.
“It has become easier to get into slum projects now because the SRA has been proactive and the requirements are not so rigid any more,” said Lalit Kumar Jain, chairman of Pune-based Kumar Builders.
The firm, which is also set for an IPO this year, has a large slum project in Pune and is looking to enter the Mumbai market as well.