Despite challenges, why redevelopment projects in Mumbai are attractive for builders

Mumbai is a city where the clash between the old and the new is starkly visible. The skyline of the city dreams, Mumbai, is dotted with dilapidated buildings standing in the shadow of modern high-rises. With dilapidated buildings still existing, redevelopment projects have emerged as a key strategy to address the city's housing needs. Despite numerous challenges, these projects remain highly attractive to builders.

But why are these projects highly attractive to builders? Experts from the real estate sector explain why redevelopment projects are a honeypot.

The reasons include many factors, such as high demand for housing, prime locations, regulatory support and incentives, opportunity for higher margins, social responsibility and branding.

Ayushi Ashar, Director at Ashar Group and Member of Managing Committee of MCHI-CREDAI, said, "Mumbai's real estate redevelopment market presents a staggering Rs 164 trillion opportunity, with over 25,000 housing societies slated for transformation in prime locations such as South Mumbai's upscale neighbourhoods like Worli, Prabhadevi, and Tardeo, and Western suburbs like Bandra, Andheri, and Khar. Despite challenges, redevelopment projects in Mumbai are proving to be highly lucrative for builders, driven by the availability of a free additional floor space index (FSI) of up to 2.5 in some areas. This makes redevelopment projects an attractive option for developers due to their relatively low upfront entry costs, offering significant cost savings compared to greenfield projects. By leveraging existing infrastructure, offsetting demolition costs through salvaged materials, and efficient design, redevelopment projects can save 20-50% in capex/costs."

"Moreover, inherent demand from existing society members seeking to upgrade and purchase additional space ensures a steady stream of early sales, providing a smooth cash flow and making these projects financially attractive. As a result, redevelopment projects are becoming a compelling option for developers, promising rejuvenated properties, enhanced livability, and substantial returns. With the city's perpetual demand for housing and limited land availability, redevelopment projects are poised to remain a honeypot for builders, driving innovation and progress in Mumbai's real estate sector," she added.

Amit Jain, Chairman and Managing Director Arkade Group, said that while the MMR and peripherals have a new land bank, the core of Mumbai city lacks a fresh supply of land parcels. "This makes redevelopment projects the most appealing option in Mumbai's most prestigious locations. This is where redevelopment projects become the most viable option in the most premium locations of Mumbai. Existing projects are typically 20 to 30 years or older and require either extensive renovations or total reconstruction. Redeveloping these projects not only provides a future-ready space but also a far more inclusive environment and lifestyle focused on amenities, which were not previously available," he said.

"Mumbai has over 25,000 housing societies in need of redevelopment. Currently, redevelopment is the only viable way to strategically reshape Mumbai's skyline with sustainable, state-of-the-art projects. Considering the rising demand for homes in the city, this aspect of residential housing is undoubtedly lucrative and a key focus area. For instance, we are currently redeveloping over 2.4 million square feet across nine housing societies in Santacruz, Vile Parle, Andheri, Goregaon, and Malad," he added.

Bhavik Bhandari, Chief Sales and Marketing Officer at Ashwin Sheth Group, said, "Mumbai is the top financial hub of India and epitomises the frontier of real estate excellence, driven by visionary infrastructure projects like the Mumbai Metro, Sewri-Nhava Sheva Trans Harbour Link, and Coastal Road. The various initiatives coupled with government programs such as the Smart City Mission and innovative FSI regulations, create an unprecedented environment for strategic investment. The future influx of infrastructure in Mumbai will significantly enhance development potential in the MMR, enabling developers to capitalise on these opportunities. Our extensive expertise in navigating government regulations, RERA compliance, and understanding consumer dynamic needs gives us a distinct advantage. Our strength and deep understanding of the MMR, fortified by decades of experience, position us uniquely to leverage the forthcoming infrastructure advancements. We are committed to transforming Mumbai's skyline and elevating its status as a global urban exemplar."

Manoj Punamiya, CEO, Royal India Corporation Limited (RICL) commented, "Mumbai's redevelopment projects are a honeypot for builders, offering a sweet spot of opportunity. With no open land left in most parts of the city, redevelopment is the only option for developers to access prime land. Challenges like crumbling infrastructure and dense populations are outweighed by the promise of goldmine profits, including the biggest gain: free additional floor space index (FSI) that can be sold to more customers. The shortage of land, favourable government policies, and handsome gains from free FSI are major reasons attracting more developers to undertake these projects. This fuels a building boom that reshapes the city's skyline and rewrites its destiny."

Despite these opportunities, redevelopment projects in Mumbai are not without significant challenges.

Experts believe that though there are prospects in redevelopment projects, builders are subjected to numerous risks and odds. Such include engaging in negotiations with residents, complying with the legal requirements exercising caution on financial management risks and engaging the other industries.

"Convincing existing occupants to vacate their homes for redevelopment can be a lengthy and complex process. Builders must often provide temporary accommodation and ensure the new units meet the expectations of the residents. Navigating through permits, clearances, and compliance with building codes can delay projects and increase costs," a real estate expert said.

The real estate expert also added that redevelopment projects involve huge initial capital and any issue involving a halt to the project or disagreement can lead to an increase in the costs.