Redevelopment: Boon or bane?

Mumbai real estate is one of the most expensive in the world and land saturation is one of the biggest reasons for this. More demand and no land supply.

Redevelopment and Mumbai

Availability of land is a big problem in Mumbai. With increasing demand, there is scarcity of free land parcels. With a major part of the city having cess and dilapidated buildings, experts advised the state government that redevelopment in Mumbai was the way out to solve the demand and supply gap.

“Mumbai is witnessing the highest redevelopment activity with over 31,000 projects approved as of May 2024. Approximately 30% – 40% of total projects in the city are under redevelopment,” says, Swapnil Anil, managing director, advisory services, Colliers India.

There are two types of projects — green field development on open land and brown field redevelopment by demolishing the existing structure. “The homebuyers suffer when the project gets stalled and the pain or challenges in redevelopment projects are more. In case of redevelopment, while the interest of both existing members and new homebuyers are the same — to complete the project as early as possible, there is generally reluctance seen among the existing members to contribute towards the additional expenses to be incurred,” says CA Ramesh Prabhu, chairman, Mumbai Suburban District Cooperative Housing Federation Limited.

See also: Mumbai records increase in retail leasing by 42% Y-o-Y in Jan-Jun’24

In a redevelopment project, what is the developer’s and tenant’s share?

This is decided based on factors, such as the project’s scale, location, and the existing market conditions. “The developers often secure a larger share of the new development to cover the cost of construction and project management, while tenants are compensated with a portion of the new space as part of their relocation and compensation package. This arrangement aims to balance the interests of both parties and facilitate successful redevelopment projects. In Mumbai’s redevelopment projects, the common arrangement for the split between developers and tenants typically allocates 70%-80% of the new development area to the developer and 20%-30% to tenants. This split reflects a general trend observed in various redevelopment projects within the city,” adds Anil.

Trouble in redevelopment paradise

But not all the redevelopment projects proceed as per expectations. Most of the times, a redevelopment project faces trouble as the developer runs out of money.

Mohan Pathak, a resident of Mulund (east) had given his 1 BHK property for redevelopment in 2021 for which he was supposed to get a 2BHK unit once the project is developed. The agreement also included the development of amenities like a swimming pool, children’s play area and gym. “While we had signed the agreement in 2019, the construction work started in 2021. As per the agreement, the project was to be completed in two years. We are already running late by a year. As per the agreement, the developer was to pay us a certain amount as rent and then increase the rent after a year. We are already late by eight months on getting our monthly promised rents and the increased rent that he had committed to pay has never happened. As he was paying the rent from the society corpus fund, it has also gone into negative, which is not a great sign,” says Pathak.

Although the new project is MahaRERA registered, Pathak and other people of the society are unsure of how much help they will get. “The developer has halted the project of our society that has over 200 flats owing to lack of funds. If we approach the regulatory body, although a new developer may step in, we may as homeowners be put in a tight spot and would have to accept whatever is being given. We still have hope with our present developer who is trying to onboard some investors. It is just a matter of how much losses he is ready to absorb, so that he can finish this project and hand it over to us.”

What can be done if a project under redevelopment gets stuck?

To start with, collect all documents related to the redevelopment project that can be used as proof and set a meeting with the developer and try to sort out the issue. Next, attempt to resolve the issue directly with the developer. If this doesn’t work, you can lodge a complaint with the MahaRERA or approach the civil court to address your problem. Note that you can’t file your complaint in all avenues hoping for a redressal from one. If done in this way, you may be fined.

Senior citizens can’t be made to suffer for redevelopment delay: Bombay HC

HK Verma in his book ‘Understanding Redevelopment of Housing Societies’ cited the case of senior citizen Jayshree Dholi, who’s flat was acquired in 2019 for redevelopment. The construction was to be completed within 24 months. The developer defaulted on the rent and alternate accommodations and the society office bearers did nothing. The petitioner said that, at her age, she has been rendered roofless for the last four years. She was supported by six other senior citizens. She urged Bombay HC’s intervention, more particularly, in the light of violation of her fundamental rights under Articles 14 (equality), 21 (life) and 300A (no person shall be deprived of his property save by authority of law). The judge ruled that prima facie, they agreed with the petitioner that senior citizens cannot be left to suffer and be roofless at the last stage of their life. The developer and the society were directed to provide suitable and adequate accommodation to the aggrieved and compensate them for the inconvenience. They were also asked to hand over the possession of the flats to the senior citizens within six months. The judge had imposed penalties on the developer, society office bearers and even the deputy registrar.

What are the risks associated with the redevelopment of a project?

While homeowners may feel the pinch of losing their properties, if redevelopment goes wrong, another set of people, who face problems, are the homebuyers who may choose to invest in a project that is being redeveloped.

“Financial setbacks are a primary concern, as buyers risk losing substantial deposits and facing unexpected costs if the project encounters issues. Delays, driven by regulatory obstacles, construction problems, and legal disputes, can lead to significant frustration and inconvenience. Legal complications, including disputes over property rights and project agreements, can result in expensive and lengthy court battles. The quality of the redevelopment can also be compromised, with issues such as poor construction and design flaws becoming apparent. Poor communication from developers, coupled with inadequate scheduling and difficulties in securing necessary permits, can further worsen these challenges, making the redevelopment process even more difficult for homebuyers,” adds Anil.

Why do redevelopment projects take more time for execution?

Bureaucratic hurdles

To redevelop a project, complex regulatory requirements, including environmental clearances, zoning laws and construction permits should be in place. Any delay in securing these approvals can delay the progress. Also, with the presence of too many stakeholders in a redevelopment project – owner, developer, contractor, and government agencies, a little miscommunication will result in long delays.

Land acquisition and tenure disputes

Once redevelopment is decided, the next step is to tackle issues related to land ownership, tenant disputes, or encroachments, which may sometimes need legal intervention to be settled. This can prolong the project timeline.

Financial constraints

Any delay in securing finance for the redevelopment projects can directly impact its timeline.

Construction challenges

Obstruction in engineering and construction of projects owing to unforeseen problems in the redevelopment site like soil instability or presence of old structures found while digging may cause delays. These will also add up to the budget of the project, hiking the construction costs, thereby the buying costs.

Market conditions

Any fluctuations in the financial market will have an impact on the real estate segment. A time like recession has a deep impact and projects like the redevelopment ones are mostly the first ones to get affected.

Guidelines to select developer when homeowners opt for redevelopment

While zeroing in on a developer for your redevelopment project, give importance to reputation, experience, legacy with successful completion of projects, technical merit with construction quality and financial capability. “Reputed developers will make efforts to complete the project on time. A reputed developer gets easy funding and is also able to sell their inventory,” says Prabhu.

Landmark projects getting redeveloped in Mumbai

• Dharavi slum redevelopment to be carried out by Adani Realty
• The BDD chawl redevelopment at Worli, one of Asia’s largest cluster redevelopment projects will be done in phases with Tata Projects Limited, Capacit’e Infraprojects Limited, and Citic Group Consortium securing the order. Mhada is the nodal agency for this project.

Celebrities who have opted for redevelopment

Housing.com POV

When a project goes for redevelopment, majority of the owners are retired, who may be living off from the monthly rent, which the developer gives them as per the agreement. Because of the miscalculation of the developer, if these rents stop, it hits hard, especially in a city like Mumbai, which ranks as one of the most expensive real estate destinations in the world. There are cases, where people have had to move from the rented apartments too and stay at the mercy of their children, because their property has gone for redevelopment with no clear timeline for delivery. A house is not just a unit but is an emotional abode for most of us and giving it up for an upgrade and never hearing about it, is a setback both financially and emotionally. One should be fully confident of the developer when the property is given for redevelopment and explore options of what to do when things go wrong, right at the beginning stage so that there is a plan B available.