Here’s why realtors are making a beeline for redevelopment projects in Mumbai

The Mumbai real estate market has of late been witnessing a surge in housing society redevelopment projects with several listed developers picking up old buildings in the land starved city to redevelop them into modern apartments. This is primarily because there are several buildings that are old enough to require immediate facelift and there is interest by many large and listed developers as they have the financial wherewithal to execute such projects.
Redevelopment projects were generally executed by Tier 2 and 3 grade developers a few years back.
Recently, Pune-based listed developer Kolte-Patil Developers Limited has signed two new society redevelopment projects in the western suburbs of Mumbai with total saleable area of 3.06 lakh square feet translating into top-line potential of ₹545 crore, the company had said.
Also Read: Kolte-Patil acquires two housing society redevelopment projects, expands footprint in Mumbai Metropolitan Region
The two acquired projects are located in prime residential areas, Dahisar and Versova. This has taken the company’s footprint in the Mumbai Metropolitan Region (MMR) to a total of 15 housing projects. The company’s Dahisar redevelopment projects has a saleable area of 2.23 lakh sq ft with a revenue potential of ₹325 crore, while the project at Versova spans 93,000 sq ft with a revenue potential of ₹220 crore.
Keystone Realtors Limited (Rustomjee Group) has been selected as the developer for redevelopment of Veena Nagar Co-operative Housing Society Limited & NeelKamal Ghruh Cooperative Housing Society Limited on a combined land admeasuring 12,120 sq m in Malad west.
Also Read: Rustomjee Group bags redevelopment project in Malad with GDV of ₹1200 crore
In addition to rehousing 342 existing members of both the societies, this redevelopment will lead to sale potential of 3,42,000 sq. ft. of RERA carpet area with an expected Gross Development Value (GDV) of Rs. 1200 crore, the company said.
Ajmera Luxe Realty Private Limited, a joint venture between Ajmera Realty & Infra India Limited (ARIIL) and Keystone Realtors Limited will execute a redevelopment project in Bandra West, Mumbai. Both companies will hold a 50% stake in the project, which is expected to generate a Gross Development Value (GDV) of ₹760 crores, the companies said in a statement.
Also Read: Ajmera Realty, Keystone Realtors partner to redevelop housing project in Mumbai
Redevelopment is a very complex process and requires the expertise of experienced builders with deep financial pockets and sound construction capabilities. “Thus, it also presents an ideal opportunity for many large builders to take up redevelopment because ultimately it is a win-win for both the developers and the residents as well. Further, given that several owners have already burnt their fingers earlier by dealing with the smaller players, buyers are reposing their faith on large and listed developers,” said Anuj Puri, chairman, Anarock Group..
Bengaluru-based listed real estate developer, Puravankara Limited has also secured redevelopment rights for a few housing societies in Mumbai’s western suburbs.
“The redevelopment space will contribute to more than 30% of the total development potential in Mumbai. As a brand, Puravankara is focusing on this market opportunity and is actively pursuing redevelopment projects in the city. So far, we have participated in multiple opportunities and are pursuing 12+ projects, of which we are shortlisted in 4. We have already announced our first redevelopment project in Lokhandwala with a potential gross development value (GDV) of ₹1,500 crore and are hopeful of stitching up a couple more soon,” said Abhishek Kapoor, Group CEO, Puravankara Limited.
Due to paucity of land, redevelopment is the only way forward for Mumbai city, and the new policy by the government has really enabled this. The policy, being clear and transparent, has given developers from Mumbai Metropolitan Region (MMR) as well as outside ample opportunities to participate actively, he said.
Another Bengaluru-based listed real estate company, Prestige Group has taken the redevelopment route in Mumbai.
“We currently have only one redevelopment project in Mumbai, Prestige Daffodils at Pali Hill, Bandra. The building had 7 floors before redevelopment and is being constructed now to a 15 storey tower having 51 apartments. Prestige Daffodils will offer rooftop and ground level amenities like infinity edge swimming pool, juice bar, gymnasium, yoga deck, cabanas,” said Tariq Ahmed, CEO, West, Prestige Group.
“Mumbai has a massive stock of old dilapidated buildings on prime land across the city. With the latest redevelopment scheme, these parcels are a prime opportunity both for the homeowners living in these old buildings and for developers to add to the skyline of the city. The old homeowners get larger areas, more modern amenities and a better lifestyle and the developer is able to offer the additional residences to new homebuyers making it a win-win for all stakeholders,” said Ahmed.
Also Read: After over 70 years, 25 buildings in Sion-Koliwada set to be redeveloped
What was previously a realm dominated by smaller builders working on single structures or tiny housing societies has transformed into a profitable arena for real estate industry titans. The compelling necessity to rectify structural flaws in existing structures, along with the desire for modern living standards in the middle of the city’s relentless urban development, has driven this paradigm change, said Khetsi Barot, Director, The Guardians Real Estate Advisory.
Similarly, Development Control Regulation 33 (11), which grants developers more building rights and the desired Floor Space Index of 4, is critical to this transformation. This regulatory benefit, along with the necessity to provide free tenements to the Slum Rehabilitation Authority, has prepared the ground for a surge in redevelopment operations. The appeal of expanding built-up areas within the confines of existing plots, particularly in Mumbai’s affluent districts where every square metre fetches a premium price, makes it attractive for developers, explained Barot.
Ritesh Mehta, Senior Director and Head, West and North, Residential Services & Developer Initiatives, JLL is of the view that several listed real estate developers have started taking up redevelopment projects in Mumbai because there not too many new land banks are available to them. The introduction of the Cluster Redevelopment Policy introduced a few months back (under which they get an additional floor space index for redeveloping existing housing societies) has given these projects a boost.
“Demand for residential properties is also linked to the presence of commercial/office spaces in an area. Commercial hubs in Mumbai are limited to Nariman Point and Bandra Kurla Complex and new land parcels for residential development are not available in and around these office complexes making redevelopment the only option left for Tier 1 developers. These realtors also get an opportunity to monetize these parcels by developing luxury projects,” he adds.
What makes redevelopment a lucrative investment is the rising demand from the city dwellers to upgrade, most preferring the same location where they reside. Hence, prime locations are becoming a hub for new redevelopment projects. It also helps in upgrading and uplifting the old localities as developers bring in their new developments with modern facilities and infrastructure, said Lucy Roychoudhury, CEO, Runwal Bliss.
Many of the developers are also seen entering mid-way as executors of redevelopment projects that have been stuck for some time. “They are in a better position to leverage their brand name and also their execution capacity. These developers can get easy access to bank funding at reasonable rates as well. This also allows many of these developers to diversify and expand into newer markets,” said Puri.
Among the major challenges in redevelopment is to get majority consensus from all (or at least three-fourth) members of the society. This is indeed a herculean task for the builder in concern because the likelihood decreases as the size of the project increases.
“Success on this front depends on excellent communication between all society members and should, if possible, involve a steady stream of professionally crafted communications as well as expert in-person presentations to outline all the benefits. As a result, there are delays and more than often projects get stuck. From not being physically present to not agreeing to the terms and conditions of the builder or even design issues, there can be varying issues,” said Puri.
Another challenge is the transit accommodation for the residents which sometimes can be quite challenging for the builder in concern, adds Puri.
According to Amit Goenka, MD and CEO of Nisus Finance, the main challenge for redevelopment projects all along has to do with funding of the free sale component.
“The floor space index that developers get cannot be funded by banks. RBI has clarified that redevelopment is equal to land cost and land cost is prohibited from lending. The fact that banks and NBFCs cannot lend for such redevelopment projects is a challenge. It’s because of this that private lending has picked up. This is also the main reason why several listed real estate players are picking up redevelopment projects unlike a few years back when it was only Tier 2 and 3 grade developers,” he explained.
Redevelopment is a ₹1 lakh crore investment opportunity in Mumbai and 10 percent of that requirement is expected to be made available through private credit and the rest through promoter equity and sales cash flows, he added.