In 2021, Rekha Chotalia and her family lived in a 225 square foot tenement in a chawl-type, low-rise building in Goregaon (West) that is part of a Maharashtra Housing and Area Development Authority layout. It had no lifts, errant tenants, unreliable water supply and a general lack of space all around.
Cut to three years later, that building has been redeveloped by a private real estate firm into a 24-storey property, with existing tenants such as Chotalia being provided an apartment with an area of 440 square feet and parking space, as well as a sizeable amount from the corpus that the developer provided to the management committee of the housing society.
"The earlier building did not have any lifts, and some occupants did not pay for utility bills or maintenance. Thankfully, the developer completed the building on time, provided us with transit rent, and now we have moved into our new home that is bigger and better," Chotalia said, having shifted into her new home with her family earlier this year.
Chotalia is not alone. With major developers such as Rustomjee, Lodha, Godrej Properties, Mahindra Lifespace Developers, Raymond Realty and others all having outlined their plans for a big push into the redevelopment market in the Mumbai Metropolitan Area, real estate observers say that previously middle-income neighbourhoods, especially in the western suburbs and in some eastern suburbs, are seeing a sea change to the levels of prosperity and lifestyles.
In some cases, those receiving new apartments in lieu of their old holdings in the chawls—tenement buildings, many constructed centuries ago to house industrial workers—as well as in older, low-rise apartments are selling those on the open market, or back to the developers, and moving elsewhere, especially in neighbourhoods that have seen very high demand, both in terms of home sales as well as developers eyeing redevelopment opportunities.
The new developments come with more amenities, and the rehabilitated apartments now cost many times more that what their previous avatars were bought for decades ago. Industry players say that with the development control and promotion rules in Mumbai allowing for a floor space index of up to 5.0 in some redevelopment schemes, all major developers have tried to carve out a space for themselves in a market with a Rs 3 lakh crore potential.
The floor space index determines the size of a building in relation to the plot it sits on.
Even in the face of hardball negotiations with housing societies, developers have been prepared to offer increasingly lucrative incentives and compensation measures to existing residents in order to seal the deal. Those include apartments of sizes 70-80 percent bigger than the existing tenement, more than one apartment, and a corpus to the housing society's management committee that often runs into crores of rupees, which is distributed to existing homeowners.
"Normally, while negotiating a redevelopment project in a society, we provide a 25-35 percent larger apartment size than their existing apartment. In some cases, that may go up to 60-70 percent larger. Besides that, we give a corpus to the housing society's management committee that is eventually distributed, as well as transit rent, relocation charges and other ancillary expenses," said Amit Jain, chairman and managing director of listed real estate firm Arkade Developers, which has a large redevelopment presence in the western suburbs.
Currently, every third launch in Mumbai is a redevelopment project. Redevelopment has been a phenomenon over most of the previous decade in the island city. But with demand, and land prices, in the suburbs headed north, all major developers have set their sights on what were previously middle- or upper-middle-income neighbourhoods, in low-rise buildings that had been constructed up to four decades ago.
The biggest beneficiaries of this move have been residents in areas such as Bandra, Juhu, Santacruz and Vile Parle, as well as parts of Andheri and Borivali, which had been bonafide working class "bedroom" communities in Mumbai around four decades ago and had been the site of small-scale town planning projects, called "schemes", largely built by local developers.
While Rustomjee, which trades as Keystone Realtors, is the largest operator in the space, others are fast catching up. Raymond Realty, Raymond's real estate venture, has outlined plans to expand largely in the redevelopment segment beyond its large Thane land parcel, while Mahindra Lifespace Developers has also inked multiple redevelopment deals in the western suburbs. Newer entrants to the Mumbai market too have opted for redevelopment projects to mark their presence. Bengaluru-based Puravankara, for instance, has lined up a couple of projects in the upscale Lokhandwala neighbourhood in Andheri (West).
Developers are increasingly preferring redevelopment as an "asset-light" model, as large expenditure for land purchases can be avoided, especially as financing for land purchases is almost impossible to come by. On the other hand, dedicated property funds of private equity firms have been willing to fund the initial statutory payments phase of projects, a large number of which are required to be completed before commencing redevelopment projects.
"Going forward, we will continue to follow the asset-light model, with redevelopment serving as a key driver of growth. The redevelopment potential in Mumbai is vast, and as the most preferred partner in this space, we are strategically positioned to capitalise on the current momentum," said Boman Irani, managing director of Rustomjee, in remarks after declaring the company's second quarter financial results.
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