Mumbai: Even during the worst days of the economic crisis, property rates at south Mumbai’s posh Nepean Sea Road didn’t fall to below Rs30,000 per sq. ft. The area, cut-off from the city’s dust and din, is dotted with luxury apartments and bungalows.

In demand: Redeveloped chawls in Parel, Mumbai. Developers are focusing their attention on old, rundown apartments in prime locations--especially in south and central Mumbai--that have limited free space for fresh construction, in exchange for a higher floor space index so that they can build more. Abhijit Bhatlekar / Mint

In one corner of the undulating stretch stands a cluster of three-four dilapidated buildings over nearly two acres, one of the few pockets here that has not yet made way for skyscrapers. Not yet.

Orbit Corp. Ltd, a Mumbai developer, has started negotiations with the tenants and building owners so it can construct towering residences or commercial properties in the area overlooking the Arabian Sea. Orbit would have to contend with India’s coastal regulation zone safeguards.

“Cluster development is the future of the city," said Pujit Aggarwal, managing director of Orbit, which is planning a similar large development at Lalbaug, central Mumbai. “But it is a tough job—more difficult to execute and more cash-intensive than redeveloping single buildings."

As the economy and the realty sector show signs of recovery from the downturn, developers are shifting their attention from defunct textile mill lands to old, rundown apartments in prime locations, especially in south and central Mumbai where there’s limited free space for fresh development.

These buildings are typically of four-five stories, with flats of 300-400 sq. ft on long leases to tenants paying low rents.

Following a state cabinet approval in February, private builders can now partner with government agencies such as the Maharashtra Housing and Area Development Authority (Mhada) or building owners and tenants to develop these clusters, in exchange for a higher floor space index (FSI) so they can build more.

Expectedly, there is a queue of developers scouting for such distressed assets.

At least 15 developers have lined up 35-40 projects to be submitted to the BrihanMumbai Municipal Corporation (BMC) for approval, an official at BMC’s building proposals department said. A committee headed by the municipal commissioner had approved four projects until end-August.

Mumbai-based Shreepati Group of companies is spending at least Rs2,000 crore to develop five clusters with hundreds of tenants who have lived there for years. The Shreepati Gardens project in Parel, in south Mumbai, where the developer is planning a number of towers of 20-30 stories each, would cost Rs800 crore.

Orbit’s Aggarwal said the challenge is to cough up cash at the initial stages of a project to acquire ownership and, sometimes, buy out the tenants. In Orbit’s Lalbaug project, the developer spent Rs3 crore to get ownership of each of the 14 buildings there.

Proposals for cluster development go through levels of screening.

After a developer acquires ownership from multiple landlords, he has to draw up a plan to be approved initially by BMC and finally by the state’s urban development department, headed by the chief minister.

The process can stretch more than a year.

The developers also have to convince the tenants—protected by rental laws—to move, either by offering them compensation or rehousing them until a new apartment of similar proportions is built for them on one part of the development.

“It’s not easy because there are many more stakeholders, but there are benefits involved like more FSI," said Abhisheck Lodha, director of Lodha Group, which has acquired two-three clusters in Prabhadevi and Parel areas for developing high-end residential towers.

In the past, relocating tenants to transit camps had been a concern for Mhada, which owns at least 15,000 old buildings in Mumbai, slowing the pace of development. In extreme cases of resistance from the tenants, Mhada had resorted to forceful eviction leading to projects getting stuck in litigation.

Chandrasekhar Prabhu, a former president of Mhada and an urban development expert, said, “The notification has given a back-door entry to allow developers to grab these properties."

Prabhu said he is concerned that none of the developers will rehouse the tenants. “Given the lucrative real estate potential of these areas, builders will throw them out after offering cash."

The hurdles aside, some developers are planning expensive and exclusive cluster development projects, hoping for a windfall.

Dynamix Balwas Group has approval for developing a 22,000 sq. m plot close to the Mahalaxmi Race Course with both commercial and residential towers. The group has four-five similar projects on its drawing board, a company executive said on condition of anonymity.

Developers hope that with time, the process of approvals and developments would be quicker. “It’s only been six months and that’s why the first lot of proposals are undergoing more scrutiny," said Pranav Merchant, vice-president of Shreepati Group.