Mumbai’s Shanghai dreams broken as rule flip-flop hurts builders
Delays to those efforts risk undermining Modi’s ‘Housing for All’ programme that seeks to eliminate urban slums across India
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Singapore/Mumbai: Mumbai’s long-cherished dream of becoming another Shanghai risks remaining just that as regulatory flip- flops frustrate plans for modern skyscrapers in place of the city’s ubiquitous, rickety and old structures.
Two months after announcing a proposal to ease the city’s 24-year-old Floor Space Index rules to accommodate taller buildings, the local administration scrapped the plan, leaving developers in a limbo. DB Realty Ltd said it may take at least two more years for a new set of rules to be prepared, while Mumbai-based Godrej Properties Ltd said some of its projects face delays.
“It is very unfortunate to see these delays,” said Pirojsha Godrej, chief executive officer of Godrej Properties. “Due to the uncertainty in the development plan, the authorities stopped giving any approvals, and we had to hold back on some launches.”
The Municipal Corporation of Greater Mumbai had proposed in February to increase the Floor Space Index, or FSI, to range between 2 and 8, compared with an earlier cap of 1.33. The FSI determines the maximum floor area allowed in a building relative to the land. A higher number means more apartments can be built on a parcel of land.
“The new draft rules could take a few months to be ready,” N.M. Gattu, chief financial officer at DB Realty, said in a telephone interview. “Redevelopment projects could come to a standstill until clarity emerges.”
The so-called new Development Plan came in for criticism from non-government organizations and political parties over the increase in FSI, the opening up of no-development zones for residential development, and factual mistakes in existing land use.
The plan needs to address the lack of affordable housing and elaborate on how the city’s infrastructure can keep pace with its population growth, Ashutosh Limaye, the head of research at Jones Lang LaSalle India, said in an 22 April note.
Mumbai needs $60 billion of investment in public transportation over the next 20 years and the current plan falls short, according to estimates by McKinsey and Co. In a 2010 study, the consultant said India must spend $2.2 trillion by 2030 on urban transportation, housing and office space to boost infrastructure ranked below that of Guatemala and Namibia by the World Economic Forum.
“It is a good thing that the government has asked to redraw the proposed Development Plan that wasn’t connected to ground realities,” said Vyomesh M. Shah, managing director of Hubtown Ltd, a Mumbai-based developer. “This may slowdown a minuscule part of property developments for some time, but it makes sense to wait for a better development plan that addresses all needs of the city.”
Mumbai is the world’s second-most densely populated megacity after Dhaka and Modi’s plan includes building 20 million homes across the country by 2022.
There may be a silver lining to the delay as it may help clear unsold inventory to some extent, Limaye at Jones Lang LaSalle said. The new rules should address the lack of affordable housing, inadequate infrastructure and the need to increase open spaces, he said.
Home prices in the city declined 2% to Rs.12,835 ($201) a square foot last quarter from the earlier three-month period, according to data from property research firm Liases Foras. Unsold homes totalled 192.3 million square feet, which will take 46 months to be sold at the current pace of sales, according to Liases Foras. A healthy market maintains between eight and 12 months of inventory.
“The next six to eight months are going to be extremely painful for everybody,” said Boman Irani, chairman and managing director of Mumbai-based developer Rustomjee Group. “You will have a population which isn’t sure which way to go, what centers they should invest in or live in.”
Shares of Godrej Properties have gained 17% and DB Realty has risen 5.9% in the past 12 months, versus the 13% advance in the 13-member S&P BSE Realty Index. The nation’s benchmark 30-stock S&P BSE Sensex jumped 20% in the same period.
The delay is likely to push the real estate sector into further disarray because even private-equity deals to finance projects in Mumbai are likely to get stuck owing to the lack of clarity over the development plan, according to HDFC Realty Ltd.
Private-equity property funds disclosed 64 investments last year in India, of which 54 had a value of $2 billion, according to data from Venture Intelligence, a research company that tracks private equity. The number of transactions was 14 percent higher than the 56 investments with 52 disclosed deals valued at $1.86 billion in 2013, the data showed.
“There is some policy change or other every year and each has a big impact on the pace of development,” Godrej said. Bloomberg
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