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The recently-released Maharashtra State Housing Policy, proposes redevelopment of buildings in 104 layouts of the state-run Maharashtra Housing and Area Development Authority (MHADA) in Greater Mumbai. A developer will be eligible for an FSI (floor space index) of three, for the redevelopment of a plot of up to 2,000 sq metres and can get an additional FSI of one, by paying a premium and sharing the housing stock with MHADA. Redevelopment of plots beyond 2,000 sq metres, will get an FSI of four.
The government expects at least 30,000 houses to become available, with the new policy on MHADA lots in Greater Mumbai and proposes redevelopment of old or dilapidated buildings in the suburbs. This will be carried out under a cluster scheme, currently applicable only to the island city of Mumbai. Consequently, at least 10,000 old or dilapidated buildings from the suburbs, are expected to get a makeover.
In addition, the policy gives a thumbs-up to the redevelopment of 40 MHADA transit camps, housing over 22,000 tenants across Mumbai. It also states that the government is looking at rehabilitating over 50,000 slum dwellers on Mumbai Airport-owned land.
How will the new policy impact the Mumbai residential markets?
The supply perspective
Will housing supply increase? It may. Probably for the first time, the government has given a true incentive to developers, to look at redevelopment in the suburbs. The area offered for redevelopment, includes MHADA lots and not simply buildings. Development of single buildings has not been too attractive to developers, as the trouble of relocating tenants, legal hassles with eviction and lengthy approval processes, often outweigh the financial returns.
At what price will the new supply be available? The construction costs for developers have been on the rise and will be high for these redevelopments, too. With higher ready reckoner rates, the premium to be charged for additional FSI, is also likely to be considerable. In addition, the developers need to set aside finances for obtaining approvals, rentals, corpus, relocating tenants and infrastructure, in case of cluster developments. Redevelopment is also a cash-intensive exercise. So, developers need to be well-capitalised.
Keeping these costs in mind, the final price at which developers will be able to offer the product to the masses of Mumbai, for whom the policy is actually intended, remains to be seen. Only then, can one gauge its impact on residential markets and specifically, on sustainable pricing. The pricing of properties by builders, is beyond government directives and if developers have to keep their margins intact, prices will need to find their own way, if the whole exercise is to make sense for developers.
Access to easy finance, often dictates the speed of construction activity and in turn, the final price of the product. Banks are usually wary of funding redevelopment projects, as a number of them have got stuck in the past, due to legal issues with tenants. Relocating tenants to transit camps has been a controversial issue and in some extreme cases, MHADA had resorted to forceful eviction.
So, while supply may increase, the pricing in residential markets may not reduce.
The demand perspective
There is always a latent demand for affordable housing in Mumbai. However, we need to see where these MHADA lots put up for redevelopment are located and whether these areas will indeed meet the demand.
Our data shows that there has been a 17% jump in the supply of houses below Rs 1 crore in Mumbai, in the first half of 2016, as compared to the second half of 2015. This means that developers are already aligning themselves with the market needs and increasingly focusing on mid-income housing.
Additional supply will be absorbed, if it is priced correctly and is at a good location.
The issue facing most of the affordable housing projects today, is the lack of infrastructure connecting these markets to office destinations. Infrastructure developments in the eastern suburbs and Navi Mumbai, have marched far ahead of developments in the western suburbs. Loading the already overburdened infrastructure of the western suburbs, with the lure of additional FSI to developers, will prove disastrous.
(The writer is COO – business and international director, JLL India)