Why are real estate developers in Mumbai picking up big-ticket land parcels in South Mumbai?

The high-value land deals that the market is witnessing reflects both captive and commercial needs.

The recent real estate transactions where top developers have picked up sea-facing bungalows with the purpose of redeveloping them into luxury apartment projects clearly shows that acquisition of land parcels in South Mumbai is part of their growth plans and their strategy is to develop these into boutique residences to cater to the ever growing demand for luxury homes.

Since Mumbai is a landlocked city, there are limited areas where upmarket residential stock can come up. It is on account of this reason that South Mumbai has emerged as a major destination for realtors to shop around for land parcels with redevelopment potential in the luxury space and experts say that this trend is expected to sustain as luxury housing demand is unlikely to fade away soon.

BGH Properties, a company of the Aditya Birla Group, had bought a bungalow in a posh area of Mumbai called Sunny Ville for Rs 220 crore, documents accessed by Zapkey.com showed. The ground-plus-two property on half an acre of land acquired by BGH Properties is located on the upmarket Carmichael Road, or what is now called ML Dahanukar Marg. The total built-up area is 18,494.05 sq ft and the area of the covered garages is 190 sq ft each. The date of registration was April 10, 2023, the document showed.

In another deal, Birla Estates Private Limited, the real estate arm of the Aditya Birla Group housed under Century Textiles, on April 24 announced the acquisition of a premium land parcel for a luxury residential project in the Walkeshwar area of Malabar Hill. The company said the super-luxury residences at Walkeshwar holds a revenue potential of over Rs 600 crore.

The company in its statement did not mention the price at which the land was acquired.

The company has acquired a plot of land that also houses a ground-plus-two building in Malabar Khambala Hill Division, Walkeshwar Road, Malabar Hill, for an agreement value of Rs 162.30 crore. The stamp duty paid was Rs 9.73 crore. The transaction was registered on April 21, 2023. The total land area is 9,000 sq ft and the building area covers 12,500 sq ft, documents shared by CRE Matrix, a real estate data analytics firm showed.

"Our acquisition of this prime plot of land in Walkeshwar is a significant milestone for Birla Estates, as it aligns perfectly with our long-term growth strategy to create a niche in the luxury housing segment. We are excited about the opportunity to create bespoke boutique residences in one of the most sought-after locations in South Mumbai. This project will undoubtedly set a new benchmark for luxury living in the city, and we are committed to delivering a world-class development that exceeds the expectations of our discerning clientele," said KT Jithendran, MD and CEO, Birla Estates.

Real estate company Godrej Properties on August 1, 2022, had also announced that it has acquired a land parcel in South Mumbai's Carmichael Road for a luxury residential project. The project will have an estimated booking value potential of Rs 1,200 crore, the company said in a statement. The land parcel, also spread across half an acre, was purchased from the Karam Chand Thapar group, it had said.

"We are pleased to add this project at a marquee location to our portfolio. The demand for luxury realty has been strong over the past few years and this location affords us the opportunity to create a landmark boutique luxury residential development,” a company official had said then.

Real estate experts say that the trend is expected to continue.

The luxury real estate segment in Mumbai has witnessed a bull run in the wake of the pandemic. Initially, the HNIs or high net-worth individuals took advantage of the market conditions during COVID times and transacted property deals at lucrative rates considering that the sellers were distressed due to a cash crunch. Later, the stamp duty reduction in Maharashtra acted as an additional driver to conclude high-end luxury transactions and save a few crores on charges.

“In the last few months, the luxury segment has again garnered traction as buyers closed deals to ensure that properties are registered before March 31, 2023, to gain maximum benefit as the capital gains cap of Rs 10 crore is applicable from April 1, 2023,” said Anuj Puri, chairman, ANAROCK Group, a leading real estate services company.

While there were several supportive reasons for the uptick in luxury housing sales in Mumbai, the continued demand clearly indicates that the requirement is real. Moreover, there are limited upmarket areas in the island city where the who’s who reside. The recent deals underline the fact that luxury housing demand in Mumbai is going to sustain for some time to come. Considering that businesses are booming in India and the nation is likely to be the fastest growing major economy in 2023, HNIs and ultra-HNIs are looking to buy luxury real estate assets, Puri said.

There is huge potential for the luxury home market in South Mumbai. Most builders are trying to acquire land parcels here because there are no height restrictions and the place offers a clear sea view. Malabar Hill and Walkeshwar Road are the current hotspots. Besides, builders are trying to aggregate their luxury portfolio, said Ritesh Mehta, senior director and head, West and North, residential services and developer initiatives, JLL

It is more than likely that there will be more such deals in the near future. It should be noted here that the area offers a floor space index or FSI of almost 4.5, among the highest in the country. (FSI is the total usable area of all floors of a building divided by the area of the land the building sits on.) Besides, it is the most premium and elite area of Mumbai where the price of land would be around Rs 15-20 lakh per sq m, Mehta said, adding that there seems no slowdown in sight with most builders eyeing acquisitions for projects in this area.

The high-value land deals that the market is witnessing reflects both captive and commercial needs. Captive is instances where these would be used for end use of HNIs and commercial interests in cases where these would be developed by real estate developers.

“At the core of this increased land purchase activity is the strong consumer desire for owning a bigger and better house that serves as an opportunity to upgrade the lifestyle of financially well-placed consumers. Besides, the resilience displayed by prime property during the turbulence of the pandemic and inflationary environment afterwards has placed this asset class well on top of the pack as a hedge against inflation and a contributor to financial stability for such buyers,” said Vivek Rathi, director, research, Knight Frank India.

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Activity in the real estate space picked up pace since February soon after the Budget 2023 proposals were announced and a Rs 10-crore cap was imposed on the reinvestment of capital gains from the sale of long-term assets, including housing. As many as 28 housing units worth Rs 1,238 crore were bought by family members and associates of Radhakrishna Damani, founder of Avenue Supermarts, which runs the D’Mart chain of stores, in Mumbai’s Three Sixty West located on Annie Besant Road in Worli soon after the proposals were announced.

According to a report by CBRE, almost 6,800 acres have been acquired by real estate developers and investors for more than $12.2 billion between 2018 and 2022 to construct greenfield realty projects.

The consultancy released a report, Indian Real Estate—Betting on a Capital Future, earlier this month.

"The land acquisition space has been buzzing with higher interest primarily from developers in the recent past. On a cumulative basis, nearly 6,800 acres of land have been acquired by developers and investors during 2018-22," the report said.

The residential market has gained the most traction, accounting for over 37 percent of the land acquired since 2018. Sensing a great opportunity, developers have further upped their game by acquiring over 900 acres for residential projects, accounting for 43 percent of the total land acquisitions recorded in 2022. I&L or industrial and logistics was another prominent sector that saw heightened activity, specifically during the pandemic years (2020 and 2021). The sector accounted for about one-fourth of the total land acquisition carried out during 2018-22.

With regard to the total investment flows in acquisition of sites, residential and mixed-use land parcels accounted for nearly 60 percent of the total share. Together, these two sectors attracted over $7 billion worth of capital flows, which is expected to lead to strong supply in the coming years, the report said.