MUMBAI REDEVELOPMENT FUND – Update

Real estate developers in Mumbai are preparing to bid for several redevelopment schemes that the Maharashtra government is planning in the city.

Top developers such as Unitech Ltd, DB Realty Ltd, Ackruti City Ltd and Orbit Corp. Ltd are eyeing the projects, which typically do not need much capital but fetch high returns.

The state government wants to build one million budget homes over the next few years, mostly with private developers and primarily through redevelopment schemes. This will involve removing slums and pulling down old, dilapidated buildings mostly to make way for glitzy skyscrapers, while rehousing the displaced people in new buildings alongside.

"There are about 20 more redevelopment schemes which the government is planning to launch in central and south Mumbai (both prime locations) in addition to the existing ones," Sachin Ahir, state housing minister, told Minton Tuesday. "In south Mumbai alone, about 100 acres of land will be available, which is a big opportunity because there is hardly any free land in such prime areas."

Property costs in central Mumbai areas such as Lower Parel and Parel hover at Rs18,000-22,000 per sq. ft, depending on the project. In south Mumbai, the rates run up to about Rs50,000 per sq. ft.

The developers don't just get access to prime land, they are also given additional construction rights, or FSI (floor space index), as an incentive to take up the projects.

"The benefits are many. The project locations are prime, developers get more FSI and are not risky because of the longer gestation period," said Ashutosh Limaye, associate director, strategic consulting, Jones Lang La Salle Meghraj, a property advisory.

It is difficult to estimate the total investment in these projects but property analysts say the future of the Mumbai real estate market largely rests on redevelopment.

Brokerage Anand Rathi Financial Services Ltd says in a March report that Unitech, the country's second-largest developer, expects to construct four to five million sq. ft of space in Mumbai every year—all of it in redevelopment.

Unitech has invested around Rs850 crore in joint ventures for redevelopment projects in the city and will invest another Rs200 crore, Anand Rathi said.

In return, the firm will get five million sq. ft of "free sale" space, which the management expects will add 20-25% to Unitech's revenue over two years, the brokerage said.