Almost half of Mumbai’s population stays in slums. This population resides in 24% of the habitable land of Mumbai. Hence any meaningful sized real estate project often comes about only through slum redevelopment. In simple language – slum redevelopment involves clearing slums from a particular piece of land, thereafter using that land to rehouse the slum dwellers into apartments free of cost, while constructing certain number of apartments that are sold in the open market. The slum-dweller gets a free and honorable apartment. The government makes money via the levies and taxes charged on construction. The builder makes money (not always though) by selling apartments in the open market.
In February 2021 I decided to visit slums in Mumbai wherein large slum rehabilitation projects are being evaluated or considered. One key slum I visited was the Jijamata Nagar slum at Worli – Opposite the Four Seasons Hotel. It is a slum with 4,200 homes and almost 25,000 people. The size is around 1.7 acres in size. The slum has been on the radar for redevelopment for decades now. Currently it is being targeted to be redeveloped by DB Realty & Prestige Group.
I have visited slums several times earlier but in every visit I am overwhelmed. The living conditions of slum dwellers is tough. Shanties are small and dense. Hygiene is given a backseat. Aspects like sewage and drainage are largely non-existent. The air feels stifled. There is no such thing as open space. It is a compromised existence.
Movies may give slums a romanticized flavour and portray slum dwellers as a spirited lot – but there is little doubt that this is a venue that is tough to romanticize and the residents in reality are a bunch that are seeing their spirit challenged and beaten on a daily basis.
The spirit was high not very long ago when developers were going all-out to acquire slums in Mumbai as part of their slum redevelopment projects. Residents believed their jackpot had arrived. For few of them, it even did. Unfortunately for a majority of them – it did not. A combination of internal conflict, greed, developer balance sheet, regulations and political mischief have sabotaged most planned slum redevelopment projects. Thus a model has emerged wherein credible developers only engage in a slum redevelopment project with the mandate of construction and marketing of a project while a partner does the activity of slum clearance and management.
Given the number of false starts that have happened, today’s slum dweller at Jijamata Nagar is a suspicious and a tired one. The area around them has transformed with many glitzy high rises – although in my view it was Lokhandwala’s Zahra that made the first big move. But conditions in the slum have only worsened. There is desperation. As one of them told me “Once upon a time we were all being promised 580 square feet free apartments. Today even if we get the minimum space stipulated by government, we will take it.”
The desperation may not translate into a deal however. From my conversations with the residents – it appeared that slum clearance was still some distance away. There has been no builder who has been able to convince the broader population. On the contrary, all the ones who have been involved previously have only caused suspicion to rise.
Will redevelopment happen then? It may. But I wouldn’t hold my breath.
There has been much attention to the challenges facing real-estate developers on account of COVID-19. In contrast there has been little focus on the challenges facing another critical segment of the housing industry – landlords. The Maharashtra government provided a helping hand to developers by slashing stamp duty on August 26th, 2020. For apartment owners in Mumbai, however, things have only moved from bad to worse as rentals continue to slump further.
As the COVID-19 induced lockdown started easing in June there were indications that rents had been trimmed by 15% – 20%. Flexible and smart landlords agreed to re-negotiate rents downwards for a limited period with their existing tenants. The ones who remained stubborn and let go of their tenants have paid dearly with the consequences.
There is no location in Mumbai that has gained as much prominence as the eastern suburb of Chembur in the last 8 years. After excruciating delay, Prithviraj Chavan in 2013 finally managed to see through the completion of the Eastern Freeway. It provided easy and fast connectivity to key nodes with its ending at South Bombay. Then last year – we saw the unveiling of the BKC Connector that would provide the shortest gateway into the new commercial business district – Bandra Kurla Complex. Notwithstanding efforts by government agencies to mess it up, connectivity to other locations like Navi Mumbai and Thane is still smooth. The monorail between Chembur and Jacob Circle is not of much importance and has to be one of the worst planned infrastructure projects of all time – but for what little it is worth; it helps the locality. In short – with regards to connectivity Chembur is an animal of little comparison today in Mumbai.
It is wrong to peg Chembur as a monolith. In itself it is a location with wide divergences in prices and buyer profile. There are chaotic areas like P. Lokhande Marg that have projects priced at around INR 15k/square feet. And then there are quaint areas with good connectivity like Diamond Garden and Union Park that often quote at over INR 30k/sqft. At a personal level I opted to stay in Chembur between 2016-19 after abandoning my hunt in trafficked locations of Bandra and Khar. After a long search I finally decided on a street along Diamond Garden. It was a very calm and green location with little commercial activity except for the dozens of bank offices and ATM’s that are on the strip of land called Central Avenue Road.
There are three features to note about the Chembur real estate market
- It is primarily a redevelopment market with smaller buildings, bungalows or slums getting converted into projects
- Until the entry of Godrej with its RK Studios project, it is a market that had no large branded player. It is dominated by developers like Kukreja, Tridhaatu, SKG, Sabari etc. Hiranandani did a project there many years back and it is a pity for Chembur that he didn’t do more
- Given the paucity of large land parcels – there are few projects that have a meaningful number of amenities. It does have a wide range of clubs/gymkhanas for different segments – from the efficient Club Emerald to the bustling Chembur Gymkhana to the exclusive Bombay Presidency Golf Club
I did a few channel checks and visited Chembur recently. Here are my findings
- Prices have dropped between 10-15% at a median level. And distressed properties are available at a discount of over 20%.
- Primary deals are also seeing aggressive pricing. Until it stretched itself too thin, Tridhaatu Developers offered superior quality at a high premium to the market. Now given the environment – it is also aggressive in its pricing
- SRA projects are seeing attention. Ruparel executed one recently with the Orion. Spenta is executing a large SRA project Alta Vista – only time will tell if it can replicate its South Bombay record in the suburbs.
- Most redevelopment projects that are being firmed up between societies and developers will almost certainly get renegotiated. If not renegotiated – my best wishes to the developers. For owners of buildings looking to get redeveloped – I will repeat my principle in selecting developers “RARELY is the highest bid – the best bid.”
- During its launch Godrej RK Studios had priced itself at a comfortable 20% premium. With prices of neighbouring projects falling and RKS holding on, the premium has now widened to Oberoisque levels of 30%-35%. I mean no offense to Godrej, but there is no developer except Oberoi and Hiranandani who can garner demand at that level of premium consistently. (And even Oberoi will be tested in two of his under-construction projects)
View on the market
- It is now an overwhelming consensus call that real estate prices in Mumbai are unlikely to rise. Even most developers have stopped spinning that story. I don’t disagree. But here is my view. With the fate and pace of the Mumbai Metro completion now uncertain – Chembur will retain its appeal due to its connectivity to key locations. Hence whenever the downcycle and COVID-19 does stabilize – markets like Chembur will recover earlier than most others. It will be a gainer for the worst reason in decadent cities – terrible infrastructure and poor connectivity for the other localities.
Why Mumbai real estate is in a crisis?
- Average cost of a new apartment: INR 1.5 crore to INR 2 crore
- Downpayment of 30% by the home buyer
- Home loan of atleast INR 1 crore
- EMI of approximately INR 75k
How many households can afford paying an EMI of INR 75k?
- ~ 15,000 households pay rent between INR 50,000/month – INR 100,000 month
- ~ 20,000 households pay rent in excess of INR 50,000/month. These households can stretch themselves and instead purchase an apartment
- ~ 60% of rental agreements involve a rent of less than INR 25,000/month
- Leakages exist in rental data: Many do rental agreements for multiple years, few don’t even do agreements, some pay a component in cash etc
- Assuming these leakages, yet number that can afford a home will not exceed 50,000 households
- First-home buyer demand impacting replacement and upgrade demand
- Trend moving towards ready and resale apartment
- Unsold primary inventory of over 100,000 units
Is it a surprise that Mumbai real estate is in a structural crisis?
NUMBER OF HOUSEHOLDS PAYING RENT ACCORDING TO DIFFERENT SLABS
||25k – 50k
||50k – 100k
Source: CRE Matrix
Mumbai’s rental registration mechanism has seen a silent revolution in the last five years. From an only manual mechanism in registration of rental agreements in 2014, today almost 90% of all transactions are done through eRegistration. The ease in registration has had a meaningful impact in compliance as well. Rental registrations in Mumbai have surged 84% since 2015. Data from the Department of Registration and Stamps shows in FY15 a total of 1.35 lakh registrations were done. In FY20, the registrations had increased to 2.49 lakh.
||Total rental registrations
Source: IGR Maharashtra, BHK Voice
No other micro-market in India has as much supply of luxury real estate as the belt of Central Mumbai. 12 projects alone have supply and upcoming supply of 8,796 units. Only 4,407 units have been booked according to data by RERA. The unsold 4,389 units have an inventory of 7.18 million square feet. Prices in that market have been on a downward slide but at an average price of INR 40,000/sqft, that means an inventory of almost INR 30,000 crore needs to be sold. It won’t be easy. Excess supply and congestion have created a mismatch that will not be plugged in a hurry. Moreover there are additional new projects scheduled for commencement in that belt. Prominent among them is an upcoming slum rehabilitation project by Godrej Properties.
Details of 8 key projects in Central Mumbai
Source: RERA, BHKVoice