Going down, to rise again

Necessity is the mother of invention, and the cliché holds true for Mumbai’s real estate market. Starved by the lack of new land supply in the city—not in the least due to its geographic constraints— every builder worth his brick and mortar is eyeing the reconstruction market for residential properties. Reconstruction, as opposed to redevelopment, does not necessarily involve dilapidated structures, of which there are 19,000 in Mumbai. With the government mandating that all 20-year plus buildings must undergo a structural feasibility study, and with liberalised floor space index (FSI) norms, it has opened up a new business stream for realty players.

What it entails is an agreement between the residents of a housing society and the developer, wherein the latter agrees to either buy the apartment from those willing to sell or agrees to bear the rental for the duration of the reconstruction, which could be between 18-24 months, for those who wish to retain their apartment. The developer earns his profits from the additional floors he constructs, courtesy the TDR clause (transfer of development rights), wherein he purchases additional space for development from the local civic authorities. This allows the realty player to double the number of existing floors, which are then sold at the existing market rate following the reconstruction. “It’s a win-win situation for both the developer and the residents—the developer gets a plot with the basic infrastructure in place, while the resident gets a bigger and better apartment for no cost absolutely,” says Vikas Oberoi, Managing Director, Oberoi Constructions.

But reconstruction only happens in good locations, says Anshuman Magazine, Chairman and MD, CB Richard Ellis. “These are established places–for instance, south and central Mumbai as also the western suburbs such as Bandra and Khar–where the gestation time is less and the probability of reselling it much higher,” he points out. In Mumbai’s toniest address, Pali Hill in Bandra, Oberoi’s company, which is vying for a block of apartments, is said to be offering around Rs 25,000 per square foot to its residents if they wish to sell out. Given that additional TDR costs are around Rs 4,000 per sq. ft and rates post-reconstruction will be at least Rs 40,000-45,000 per sq. ft, Oberoi could make a neat killing on all the additional apartments that he constructs. The returns would be more than enough to cover not just the cost of acquisition of the apartments and the stamp duty paid on behalf of the existing owners but also the rentals borne and the cost of reconstruction. Oberoi, however, stresses that even if he sells the new apartments at the current market price post-reconstruction, he will make a decent profit.

But it’s not all hunky-dory. “It’s not the ideal option for real estate companies, since one has to deal with many people, and that’s time consuming,” says Mufatraj Munot, Chairman, Kalpataru Group, which itself has three to four such projects underway in the Bandra-Kurla Complex. Apartment residents, too, have got smarter and are calling in for a formal tendering process from more than one builder. But given that land in Mumbai, unlike other commodities, has ceased to be abundant, realty players don’t have much choice—or reason to complain either.

—Tejeesh N.S. Behl