Mumbai housing redevelopment: A Rs 3 lakh crore opportunity hobbled by small land parcels, long gestation periods

Observers, however, have doubts about the segment reaching its full potential, due to the number of challenges involved. According to data provided by Knight Frank India, of the near-700 definitive agreements signed between developers and various housing societies, only around 10 percent are being developed on land parcels sized more than 1 acre.

With homeowners in various in-demand micro-markets demanding increasingly larger homes, developers may stand to lose out on significantly recovering construction and approval costs, transit rent, and associated costs, as the area left for them as the free-sale component reduces.

"In areas such as Bandra, Juhu, or Versova, the affluent, white-collar residents employ significant resources themselves to know the value of their properties, and thus they extract a significant premium from developers, including homes that are twice the size of their existing units, as well as a significant contribution to the corpus for maintenance of the society. Besides that, developers have to pay transit rent and moving costs as well. After providing the increased area to existing members, there is not much left over for the free sale due to the small size of the land parcels in those areas, despite the new development control rules," said a Mumbai-based builder involved in redevelopment projects.

Viability concerns

Redevelopments are also happening when concerns have risen about a possible flattening in Mumbai's real estate sales, raising doubts about the viability of agreed or under-construction projects by the time the developer markets the free-sale component.

"The cyclical nature of the real estate business is also to be considered. Redevelopment is a long process, and by the time the agreements are signed and the residents are vacated, the project may not be viable anymore if the cycle turns negative. Reputed and large developers may still be able to complete the project due to their finances but smaller developers may even dump the project, sell it to someone else, or wait for the cycle to turn positive,” Gulam Zia, senior executive director at Knight Frank India, said. Developers may also need to persuade existing tenants to accept a reduced area from what was initially promised to homeowners, he said.

The long and convoluted redevelopment process is also a key challenge for the industry, observers said. The entire process, from the initial proposal to the definitive agreement to the demolition and rebuilding of the society, may require at least six to eight years, with some projects taking more than a decade to be built, they said.

The process involves multiple general meetings of society members, negotiations between the developer, the society management committee, as well as homeowners, along with a lengthy legal process that may require resolving disputes between homeowners, their families, or other residents. Amid this, there is always a threat of time-consuming litigation.

"Various members may demand larger homes to various degrees. The developer obviously cannot accede to all requests and has to come up with an average in terms of the size of the home to be provided. This has often caused some members of the society to drag the whole process, mainly through litigation," Zia said.