TILL LAST YEAR, buying a new home in Mumbai was like playing a very expensive guessing game. Flexible building rules allowed realtors to charge Rs 10 lakh extra for a 30 sq. ft. space outside the kitchen window, calling it a “flower bed”. The building plan submitted to local authorities would have an open space marked as a balcony, not chargeable under the rules. But a buyer may have paid extra for it because it was sold as part of the living room.
In January, Subodh Kumar, who was then the commissioner of the Brihanmumbai Municipal Corporation, cleaned up the rule book and whittled down the discretionary powers of officers approving building plans. The stricter and more transparent rules have made it easier and faster to redevelop even old buildings—Mumbai has 30,000 of them.
Redevelopment of old buildings began picking up a decade ago, but because of the legal and bureaucratic hassles involved, few big realty companies got into this business.
The new rules are attracting companies such as Godrej Properties, Tata Realty, and Patel Realty. Pravin Malkani, managing director of Patel Realty, says: “The uncertainty over permissions has been reduced, making the business attractive.”
In the prime western suburbs of Bandra, Khar, and Juhu, as well as central areas such as Dadar and Parel, where a square foot of land is valued between Rs 25,000 and Rs 40,000, most buildings have two or three storeys. The buildings were were constructed in the ’30s. Tenants in such buildings pay measly rents, kept down by laws written in the ’40s. “Because of rising costs and the lack of space, they don’t move out,” says Ramesh Nair, managing director-West India, at realty consultancy Jones Lang LaSalle India. Tenancy in many such buildings will now be converted to ownership.
The business is huge because redevelopers are allowed to give 35% more floor space to existing residents and can recover costs by constructing additional floors equal to the area of the old apartments put together. The buildings, between 70 years to 100 years old, were constructed according to the limits on the height and floor space index in force then.
It works like this. If a realtor redevelops a building in Bandra or Juhu comprising 20 flats of 1,000 sq. ft. each, the existing residents get 1,350 sq. ft. homes. The realtor builds another 20 flats of 1,350 sq. ft. in the same building and sells them at, say, Rs 35,000 a sq. ft. The realtor’s revenue works out to Rs 94.5 crore. Add extra charges for parking space and for higher floors and it could go up to Rs 100 crore. If 10% of the old buildings are redeveloped and each yields even Rs 50 crore to the realtor, the business works out to Rs 15,000 crore.
