Why realtors are cashing in on redevelopment projects

Land parcels in prime areas in the Mumbai city are drying up, and that's putting more pressure on real estate companies to ramp up their margins. So, this is driving many players to actively pursue redevelopment projects reports CNBC-TV18’s Priyanka Ghosh

In the concrete jungles of Mumbai, open space is a scarce commodity. So many developers are now turning to the redevelopment of slums and dilapidated buildings. What was once the forte of local builders is fast becoming the next big corporate hunting ground. In March, Godrej Properties announced plans to redevelop two projects in Mumbai; one in Chembur, and the other in Malad. Similarly, Oberoi Realty has been in a long-winded negotiation for a one million square foot redevelopment project in suburban Mumbai. Also read:India among world's top 20 realty investment mkts Unitech, as well designed its foray into the Mumbai market on a partnership with Omkar Realtors in a redevelopment project, a project Ajay Piramal's Indiareit has now stepped into. Indiareit has already raised a corpus of Rs 400 crore that will find its way to various redevelopment projects in the city. Moreover, corporates, private equity funds are also warming up to the idea of investing in redevelopment projects. Apart from Indiareit, the ASK Group and Red Fort Capital have also recently invested in redevelopment projects in Mumbai. However, with redevelopment being perceived as a high-risk, high-return vertical some of the funds are taking precautions. Khushru Jijina, MD, Indiareit says, "Why we have kept the fund size small because in this space, we need to be in with the right developer and for government permissions too we need to enter at the right time for example in both our projects when the necessary government permission like the letter of intent (Lol) was in place which de-risks the project to a large extent." However, one big attraction to this model is that the cost of acquiring a redevelopment project in the city centre is pittance, when compared to the cost of acquiring open land and there is also the aspect of profitability. An apartment costs approximately Rs 40,000 per square foot in the city centre and around Rs 5,000 per square foot in the far northern suburbs of Mumbai. Hence, redevelopment in the city will yield better results financially, than launching a fresh project in the far-flung suburbs.