A slew of developers from Kolkata, Pune and Bangalore are venturing into Mumbai, ignoring its reputation as the country’s toughest property market owing to difficult building regulations, paucity of land and high prices.
With the Maharashtra government bringing about clarity in development control regulations (DCR) for the city last year, developers from other cities are hoping they, too, can reap the high profit margins the Mumbai market offers.
Among the Bangalore developers exploring opportunities in Mumbai is Salarpuria Sattva Group, which has residential and office projects in Bangalore and Kolkata.
Chairman and managing director Bijay Agarwal said the company is in talks to develop two-three projects in Mumbai, mainly through joint ventures with landowners and other developers as partners.
“Mumbai is a new city for us and we don’t want to buy land now. We are looking to do redevelopment projects with suitable partners in the beginning,” said Agarwal.
Provident Housing Ltd, a Puravankara Projects Ltd subsidiary that sells apartments priced at Rs.22-32 lakh in Bangalore, Chennai and Mangalore, is also scouting for joint development opportunities in suburban Mumbai. “It will take six to eight months before we announce a project,” said group chief executive Jackbastian K. Nazareth, adding apartment prices will be higher at Provident’s Mumbai projects.
The trend of developers from smaller cities venturing into Mumbai indicates not only a rise in ambition to expand geographically, but also a saturation in their home markets requiring them to explore larger cities, say analysts.
But Mumbai still isn’t an easy market to crack. New Delhi-based DLF Ltd and Unitech Ltd, once the country’s largest developers by market share, had to exit most of their projects in the city after the slowdown of 2008.
“Being present in Mumbai creates national presence for any developer, but existing players (developers) themselves are struggling with slow sales even as prices refuse to come down,” said Om Ahuja, chief executive, residential, at property advisory Jones Lang La Salle.
Even apartments in remote suburbs in Mumbai such as Mira Road sell at Rs.8,000 a sq.ft.
Also to consider is the steep cost of project development in Mumbai—more than double that in a city, say, like Pune—though profit margins are substantially lower in smaller cities, Ahuja said.
The high potential profits are the main draw.
“We looked at smaller tier III cities such as Bhubaneshwar and Jamshedpur, but the infrastructure isn’t organized and they don’t make financial impact to your portfolio,” said Rahul Saraf, managing director of Kolkata-based Forum Projects Pvt. Ltd.
The firm recently signed a joint venture agreement with Mumbai’s Omkar Realtors and Developers Pvt. Ltd to build a luxury residential project in the city’s Bandra-Kurla Complex by redeveloping a slum pocket. It is set to finalize a deal for a second project in suburban Chembur.
Saraf said that as an organization that is growing, there is an appetite to increase bandwidth geographically.
“In Mumbai, we need to have a minimum bandwith, do (develop) 1.2-1.3 million sq. ft of saleable area and have a team in place. With the new DCR, there is a lot of clarity, which is good for developers like us.”
The new DCR introduced for Mumbai last year apply the same floor space index (FSI) rules for all builders, removing any scope for FSI violations that were rampant earlier. The state also introduced fungible FSI that allows a developer to build more on any given space on paying a premium to civic authorities. FSI determines the amount of construction allowed on a given plot.
Pune-based Kolte Patil Developers Ltd opened an office in Mumbai in 2007, but hadn’t been active because of the building regulations. Now, it has a five-member team in the city with a long-term commitment, said chief executive Sujay Kahale. The firm is looking at two redevelopment projects, one in south Mumbai and another in suburban Bandra.
Another Pune-based developer, Amit Enterprises Housing Ltd, recently started building a 60-storey residential tower in upscale Prabhadevi and is eyeing two-three land or project acquisitions in south, central and suburban Mumbai.
Some non-Mumbai developers are still cautious in their plans for the city.
Pune’s Marvel landmarks Pvt. Ltd is redeveloping a dilapidated building in Colaba into apartments but is taking it slow. “Once we spend three-four years to understand the city and get a better idea, then we will get more aggressive,” said CEO Vishwajeet Jhavar.
Sanjay Dutt, executive managing director, South Asia, at consultancy Cushman and Wakefield, said both banks and private equity funds lend more easily to Mumbai developers, and with a better regulatory environment, more developers would be seen venturing into the city.
The Mumbai Metropolitan Region saw 10.30 million sq. ft of sales in the December quarter at a (weighted) average price of Rs.11,295 a sq. ft, according to research agency Liases Foras. Mumbai’s real estate inventory, or unsold stock, is high at 144 million sq. ft, second only to the National Capital Region’s 283 million sq. ft.