Godrej Properties, Housing Development and Infrastructure, DB Realty, Ackruti City, Shapoorji Pallonji and Kumar Urban Developers are among the big builders chasing redevelopment contracts.
Greater clarity in rules and the pressing need for more houses in land-starved cities like Mumbai have builders eyeing opportunities for redevelopment after a two-year market slump and recession.
"Now we have the opportunity to do large redevelopment projects, as the policy on redevelopment has been clarified," Godrej group chairman Adi Godrej said last Friday. "We are hopeful that within the next six months, we will announce a few large redevelopment projects.
"Another reason [for redevelopment] is the scarcity of land for development in Mumbai," Godrej said, adding that some of the buildings in the island city are "very old, built during the British era".
Besides Godrej's realty unit, Godrej Properties, Housing Development and Infrastructure, DB Realty, Ackruti City and the unlisted Shapoorji Pallonji & Co and Kumar Urban Developers are among the big builders chasing redevelopment contracts.
"The rules were published four years back, but there was no clarity with respect to regulation. Now with time, some clarity has emerged," Lalitkumar Jain, vice-president of the Confederation of Real Estate Developers Associations of India (CREDAI), an industry body, said.
Sections 337 and 339 of the Development Control Rules for Mumbai were clarified only by the end of 2009. Section 337 deals with reconstruction of cessed buildings — old, tenanted and dilapidated buildings that need to be redeveloped — while 339 talks of additional incentives for merged plots, Jain said.
"For two years we were in a bad patch due to the bad market conditions. Now things are moving," Jain, who is also chairman and managing director of Kumar Urban Developers, said.
Jain's company has filed initial papers for a Rs400 crore initial public offering and has undertaken 18 redevelopment projects.
Vertical growth
With little land to expand in the island city, the financial hub of India, the only growth that can take place is vertical. And the state government has belatedly realised this, offering incentives to builders and developers to redevelop old and dilapidated buildings.
The relaxation of the floor space index (FSI) — the ratio of total floor area of the building to the size of the land — norms for redevelopment projects is one such incentive.
For redevelopment projects, builders get higher FSI of up to 4, compared with 1.33 in the island city and 1.00 in the suburbs, Pranay Vakil, chairman of property consultants Knight Frank (India), said.
"Secondly, more clarity is emerging with the courts giving decisions that if 70% of the tenants have agreed, then redevelopment should go on," Vakil said.
"There are around 20,000 dilapidated buildings in Mumbai," HDIL managing director Sarang Wadhawan said, adding that he was pursuing more projects besides the Mumbai airport slum rehabilitation project his company won in November 2008.
Mumbai needs an estimated 1.2 million new houses in the next three years to meet housing needs against a current annual supply of 50,000, CREDAI's Jain said, adding that builders expect around 60% of the total slum area to be allocated for redevelopment projects.
There are 6,500 acres of land in Mumbai covered by slums, according to the HDIL website.
However, foreign firms are apprehensive about redevelopment projects. An example is the Dharavi redevelopment project, with the government initially looking to provide 225 square feet carpet area to residents who lived there prior to 1995.
However, the cut-off year for residency has been extended and the area entitlement has been raised several times by various political dispensations in the state.
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