Redevelopment Is Altering Mumbai’s Property Market
Of more than 500 proposals received, Mumbai civic authorities have approved 350 redevelopment projects so far this year.
Scarcity of land and soaring prices have made Mumbai a hub of redevelopment.
With more than 1,000 redevelopment projects approved since last year along with the ongoing ones from previous years, 90,000 apartments are expected to be created out of redevelopment over the next three years, according to analysts at Ambit Capital. Most such projects are expected to be situated in south, central Mumbai Metropolitan Region and western suburbs, which face low supply given the land constraints.
Of the more than 500 proposals received, around 350 have been approved this year so far by the BMC, according to data accessed by BQ Prime. More than 600 were approved last year. A large part of supply in the western suburbs is attributable to redevelopment.
India's financial capital is also the nation's costliest real state market, largely because of land costs. High prices deter buyers in the middle to affordable segments even as demand for luxury homes has surged since the pandemic. Redevelopment allows builders to create new stock without buying land and existing owners of old buildings get new homes.
Between 2014 and 2019, redevelopment accounted for merely 5-10% of the total construction activity, but such projects now make up about 15-20% in Mumbai, said Keval Valambhia, chief operating officer at CREDAI-MCHI. “This percentage is projected to grow even further in the next two to three years, potentially reaching 25-30%.”
Given the substantial increase in redevelopment efforts, a significant number of flats or housing units are expected to come up in the next three to five years.
Impact Of Pricing
As the number of redevelopment projects increase, the total construction sites in the Mumbai Metropolitan Region have gone up, according to Ambit Capital. That has pushed rental rates higher by 10-20% compared with an annual rise of 5%, it said.
The excess supply from such redevelopment projects will cause a pricing war in select markets and the rate appreciation that everyone is hoping for in these regions may never play out, according to analysts at Ambit.
“Generally, prices are expected to go up by around 10% because of the 2-3% rental yield, but with the amount of supply coming in, a growth of 3-5% is a more realistic number,” they said in a note in May.
The Maharashtra Housing and Area Development Authority is granting approvals to self-redevelopment projects within two months as against the four to five months earlier, said Anuj Puri, chairman of Anarock Group. The The floor space index FSI for such properties was raised from 2.5 to 3—allowing taller towers—in 2017, encouraging the new trend, he said.
For developers, redevelopment is a cost-effective way to build residential or commercial structures by using the unused potential of the property including FSI and the transferable development rights with gradual capital investment.
Land cost can go up to 80-85% of the total cost of a project but it becomes zero in redevelopment, and from the total construction developers can sell 60-70% in the open market, said industry experts. That's driving the surge
However, from the start of negotiations to the beginning of the development process takes around year and a half to two years. The larger the society under redevelopment, the more time it can take to reach an agreement with the members.