Reality of Realty in Mumbai

Implications: Mumbai which is often touted as the 'Manhattan of India’ is ranked seventh among the most expensive cities in the world to do business and stay in. With property prices touching all time highs, the current scenario is being questioned and is labeled as a bubble by many.

Analysis:

Changing Lifestyles

The country’s fast paced economic growth is creating demand for all kinds of real estate across all town categories. There is a huge demographic shift as people move more towards the cities. That’s exactly what is happening in Mumbai, the commercial capital of India. In spite of the current infrastructure scenario in Mumbai, especially with regard to traffic congestion, power issues, and water shortages, there is still a huge influx of people from other parts of the country into this city. With an increase in the number of families there is constant creation of new buyers for the city’s real estate, irrespective of the price.

This upward trend is also the result of an ongoing chain reaction that started with the service sector companies. As a result of company expansion and outsourcing activities, corporate spending started increasing. The emerging middle class and their higher per capita income have created a need for residential complexes in metros. Coupled with rising aspiration levels, the convenience of owning a home is growing at a fast pace too.

Although the prices of premium properties in Mumbai differ from location to location, the city continues to attract maximum Non Resident Indians [NRIs] and foreign investments as it is the business capital of the country. There is a rising demand in the Indian real estate market for bigger and better apartments, mainly from Executives and High Net worth Individuals [HNI’s] in their mid twenties and thirties working for financial institutions, banks, IT, software and BPO companies.

Taking a cue, developers and builders are offering high end properties which become landmarks in their own locations over a period of time. Value additions to modern homes include aesthetic exteriors with state-of-the-art security systems, multi level lobbies and car parks. Homes are centrally air-conditioned equipped with modular kitchens sometimes fitted with a chimney, fridge and a cooking range.

The interiors of a luxury apartment could sport Italian marble/wooden/imported tile flooring, acrylic emulsions, the best modular kitchens basically, the works. Bathrooms are fitted with the best sanitary fittings with master bathrooms having add-ons like sauna, steam, and Jacuzzi. Typically these places would also offer splendid views of either a picture-perfect city skyline, or a sea view and green open spaces with a host of entertainment and recreational options.

Commercial Property Scenario

Mumbai's commercial real estate market has appreciated considerably over the last two years. There is a shortage of commercial space in the city though the demand continues to remain strong. There has been no significant addition of new office space in Mumbai’s prime commercial districts. With the lack of new properties coming up in prime locations, commercial property prices in old buildings are also fetching a huge premium. Due to high acquisition costs, the rentals are bound to be steep.

Mumbai has always been the hot favorite for most of the corporate sector to have their headquarters in the city. The earlier business destination of South Mumbai has now given way to the new business districts, which have come up in Bandra Kurla complex and Lower Parel areas and more recently, newer business complexes are coming up in Andheri and other districts in the northern part of the city.

The rise in property prices as well as the increase in rental values in Mumbai owes much of its credit to the large scale investments in the commercial sector. The current government’s policy of allowing 100% Foreign Direct Investment (FDI) in real estate has added to the market value of the industry. Large scale rollout plans by global property market leaders and foreign companies has increased the size of deals and is a prominent reason behind the soaring property prices. Private equity and venture funds with their strong financial position have also infused large fresh funds into real estate. FDI in India has it’s limitations under the prescribed norms set by Indian Government.

There is increasing investments by MNCs in the IT, ITES and the BPO sector. Moreover, mega activities in the retail sector have propelled the boom cycle further. With the opening up of the retail market, there has been a growing demand for retail properties in Mumbai. This has created a viable market for mall space and other retail stores and showrooms. These retail stores and malls are either owned by a business group or leased for hefty prices as the demand is high.

Special Economic Zones [SEZs]

Special Economic Zones envisage attracting large investments and giving a push to other economic activities while generating employment opportunities. The emphasis is on enhancing exports and creating an environment for attracting Foreign Direct Investment (FDI) by offering tax sops. Many developing countries, including China, have used them successfully.

Real estate and hotels major Royal Palms will invest around Rs. 600 Crore to set up an IT/ITES SEZ that would come up in Mumbai’s north-western suburb of Goregaon. India's largest private entity, Reliance Industries (RIL) upcoming 12,000-hectare SEZ project near Mumbai, which is the largest in terms of size, is a merger of Navi Mumbai SEZ and Maha Mumbai SEZ.

Among other SEZs which have got the final approval from the state government are 12.59 hectare hub in Powai to be developed by Hiranandani Developers and a 12.14 hectare project at Mahul in Chembur to be developed by Bombay Industrial Corporation. Other applications for setting up SEZs in Mumbai include a 27.73 hectare proposed IT/ITES SEZ by Raheja’s Ozone Developers and RNA Builders for 20 hectares in the northern part of the city, between Borivali and Mira Road. ‘In-principal’ approval has also been granted to the proposed 1000 hectare entertainment and tourism SEZ at Gorai-Manori by the Essel Group.

Dharavi (Slum) Rehabilitation Project

Much deliberation has gone into the Dharavi Redevelopment Project. The Maharashtra Government is committed to an investment of Rs. 9,300 Crore (almost USD 2.3 billion) to recreate Mumbai’s infamous Dharavi suburb, strategically located at the crossroads of the central and western suburbs of Mumbai. Newspaper advertisements were published by the Maharashtra Government in 20 countries inviting international developers to alter the Dharavi landscape from the largest slum pocket in the world to an integrated township.

Leading international developers from 40 cities across the world including the US-based Hynes, Far East-based Capitaland, Ascendas, Ayala, the UAE-based Emaar, Nakheel and Limitless have started lobbying strongly with local developers such as Hiranandani Constructions, Rahejas, Kalpataru, Lokhandwala Infrastructure, and Akruti Nirman to form joint ventures to create a world class city by 2013. Financial bids will be invited in September, 2007, and only those builders with experience of setting up at least one 100 acre township would be eligible to apply. Joint ventures would also be entertained, with a maximum of three partners.

Mumbai’s dream project is slated to have five self-sustaining sectors spread over 144 hectares equipped with schools, hospitals, playgrounds and parks for its residents. About 70 million square feet of construction is envisaged, of which 30 million will be for residential space and amenities while 40 million square feet will be up for free sale. It is envisaged to provide infrastructure along five points dubbed HIKES where H stands for Health: State of Art Health Care Centre; I for Income: Income generation through supporting the craftsmen working in leather, pottery, food processing, garment manufacturing, gems and jewelry industries. K for Knowledge: Through education to achieve 100% literacy, and, S for Socio – cultural development.

Displaced residents of the existing colony would be rehabilitated free of cost in a self contained pucca tenement with a carpet area of 225 sq ft. Besides, additional amenities like school, an ITI, colleges, municipal hospitals, police stations and post office will also be provided. Taking into consideration the various industrial units in Dharavi, it is being proposed that only non-polluting industrial / businesses will be retained in Dharavi.

The commencement of the project is expected to create a stir in the Mumbai property market as business prospects emerge. Dharavi would be a zip away from the upcoming seaway covering the Bandra to Worli distance. Developers have already started charging a premium over the current real estate prices for their projects due for completion along the proposed eight-laneSeaLinkBridge. Opinions are divided on the impact of the 535 acre project on the rest of Mumbai.

Beyond Dharavi, there are a number of old structures in south and central Mumbai which are also being brought down and restored.

On Redevelopment front…

Lack of space for new property development in the metropolitan city of Mumbai has made the property prices shoot skywards. On the other hand, there are thousands of ageing buildings which are dilapidated and the problem grows more acute with each passing year. Though they are in dire need of extensive repairs, societies do not have the resources and necessary funds required to carry them out.

Keeping in mind the objective of redevelopment of existing colonies with new structures, the Government has floated various schemes wherein they have allowed 2.5 Floor Space Index (FSI) for carrying out redevelopment schemes. In 1999, modifications were introduced to the Development Control Regulations, which allow redeveloped properties to rise above the 45-metre limit. This modification was needed as additional FSI which was provided to builders as incentive for redevelopment, could only be accommodated by going higher.

In case of redevelopment of old buildings, builders approach societies that either have some open plot of land or are willing to demolish the old structures to reconstruct new buildings. Where such a development is possible, builders normally agree to pay some consideration to the society for its permission to construct a building on the open plot of land or to construct a new, bigger building using the Transferable Development Right (TDR), Floor space index (FSI) after demolishing the existing structure, and by providing alternate residential flats to members till the new building is constructed.

With the opening of the land locked defunct mills in Mumbai’s Lower Parel area, the entire mill area is now transforming into a plush corporate zone with the biggest labels, multi-cuisine food courts, life style shopping malls, five star hotel and exclusive residential areas. The new benchmarks in vogue have helped many other Indians to live in a better environment and we hope the plans of infrastructure which are in the pipeline come through alongside.