Brick, mortar and foresight

Luminaries from the industry put the spotlight on how the real estate sector in Mumbai would metamorphose in the next 5-10 years. Piggybacking on infrastructure growth and various government regulations, including RERA and green norms, the real estate sector is poised to witness a sea change

Mumbai is one of the fastest growing cities in the world. In fact, the annual Global Cities research report, Oxford Economics mentions that in terms of GDP in 2035, Mumbai figures in the top 10 positions with projected GDP growth of 6.6 per cent. The real estate sector contributes heavily towards the GDP. According to an estimate, the contribution of real estate sector towards GDP is expected to rise to 6 per cent in the next five years.

In this regard, luminaries from the industry were invited on a common platform to brainstorm over the growth of real estate in Mumbai suitably supported by infrastructure development in the next 5-10 years. Amit Gossain Chairman of CII Committee and Managing Director, KONE India, was the moderator of the event. The eminent panelists included Niranjan Hiranandani, Co-Founder and MD of Hiranandani Group, Jitendra Mehta, Chairman of JVM Group and Vice-President of Credai MCHI-Thane region, Manoj Daisaria, Principal at Daisaria Associates, Amit Wadhwani , MD of Sai Estate Consultants Chembur Pvt. Ltd and Shashank Mehendale, Principal at Shashank Mehandale and Associates.

Mumbai remains a brownfield development with no vacant land parcels available. There is a shortage of land and most of the projects are redevelopment, either it may be slum redevelopment, cess properties, tenanted properties, co-operative housing societies or Mhada projects. The government is trying to meet the challenges by giving incentives in terms of floor space index (FSI) and open space concessions, among others. However, the challenge is that most of the FSIs and the premiums are related with the ready-reckoner rates, points out Architect Manoj Daisaria. “In the last six years, the real estate sector has, in fact, gone down but ready-reckoner rates have kept going up. It has only one formula, every year keep on increasing the ready-reckoner by 10% that is why real estate in Mumbai is becoming unaffordable. It will not be possible to provide affordable housing unless and until the government will seriously think on these issues and make it a viable proposition,” he said.

Further, he pointed out that the land rates in the suburbs from Bandra to Versova are anywhere between Rs 2-2.5 lakh per square metre. “Most FSIs, premiums, open space, staircase, development charges are related with ready-recknor rates. If these rates are not going to be real estate rates, I can give you examples of several properties in the city that are becoming unviable. The cost is Rs 60,000 per square feet and the selling rate is Rs 45,000-50,000 per square feet. None of this is redevelopment. If these issues are not resolved, real estate in Mumbai is not going to be affordable in times to come. The government will give FSI and all concessions in open space but if it is not going to become real estate as far as the premium part is concerned, all these developments will remain on paper. Most of the buildings as you are aware are almost 50 years old and it will start crumbling in the next 5-10 years. So the government needs to think on this aspect seriously and work towards it,” he said.

Hiranandani's view

Niranjan Hiranandani remained positive about development in Mumbai as he pointed out that in the next five to seven years, the state government is going to invest about Rs 2,10,000 crore in building several infrastructure developments, including 210km of Mumbai metro line, coastal road project, Navi Mumbai International Airport, Mumbai Trans Harbour Link, and Ro-Ro connectivity to Alibaug. “In the next five to seven years, If you consider Mumbai Nagpur freeway, you will have about Rs 2,65,000 crore worth of construction. In the last 60 years of Mumbai regions existence, we have not invested more than Rs 50,000 crore, including all infrastructure projects put together. Obviously there is a paradigm shift in terms of infrastructure development as the base. Second, the growth in terms of real estate in the next five years in India is going to grow at a compound annual growth rate (CAGR) of 35% compounded every year for five years. If it does grow at that rate, it will meet 50% of the prime minister's target in terms of affordable housing to be done in this period. Which means growth is going to be there irrespective of what we do. Third, peripheral areas of Mumbai when you do cross harbour connection you will add as much land parcel connected to Mumbai within a reach of 1hour distance by whatever is the means of transport which we are now talking about. This will look at empty land parcels as big as half of Mumbai city. If we plan ourselves in order to take up the benefit of all these infrastructure development and the benefit of affordable housing in terms of the smaller sizes of apartments so that the disconnect between the consumer and the actual production that we do is going to happen. So in peripheral areas of Mumbai on Mumbai Nagpur distance, all the other areas of Mumbai Pune road and others, you are going to see a huge growth of this. How we pick up this opportunity is for individual developers to do. But the paradigm of the type of housing you need and the type of infrastructure and the townships you need to create is going to change,” he said, adding that consolidation will be the norm in the industry.

Rera impact

In 2016-17, the government introduced several policies in the form of demonetisation, RERA, Insolvency and Bankruptcy Code and also the Benami Property Act, which caused a shakeout of the real estate, he points out. “Now when you wanted to build a building, let's say X square feet of building, we needed Rs 50 crore for the purposes of investing into it because people buy much later. You need to escrow 70% of the amount. So the same developer now requires Rs 150 crore of investment to make the same square footage. Again I say subject to rider of increase in FSI cost and other things, the amount of capital required, the capital of debt required and even if the NBFCs and banks are in trouble, how do we get these funds for the developers and other people to manage for the purpose of housing. So the growth story will take place 100 per cent. Infrastructure growth shall take place. How are we going to as developers do a change management of the new situation of India subject to the regulation of Rera be able to implement this new change it is a great story that we are going to see in the next few years. How many of us will survive in the new circumstances only time will tell,” he says.

Speaking about the implementation of Real Estate (Regulation and Development) Act, 2016 (RERA),  Hiranandani remained upbeat saying that it is the best implemented policy in the state in the entire county. “It is a complete online process for the first time in India where disposals of complaints are undertaken. There is a conciliation committee in which developers get together to solve the problems which they have been able to solve 80% of the cases. There is a huge change in terms of transparency and availability of information to the consumer. In the new schemes the consumer is more than adequately protected.”

However, there difficulties that arise due to the transition phase, he says. “RERA came in to take into account older schemes and newer schemes. New schemes I think will do extremely well under the Rera regime. As far as old schemes are concerned, large number of developers who had liquidity crisis and otherwise who have gone through difficulties are not able to arise and raise RERA regime. But from the consumer's perspective, RERA and MahaRERA is excellent.”

OC issues

While he was gung-ho about the RERA policy, he pointed out that there are problems with “corruption” at the operational level, which has not gone away. “The delay in terms of procrastination by the approving authorities is still there. Whether it is environmental clearance, tree authorities, civil aviation and all these things are taking too much time. Unfortunately, RERA has no authority to issue orders to another government agency whether environment or otherwise. So while they can penalise the developer which is the right thing to do but they cannot penalise the officer who does not do the work. So I think somewhere down the line we need an amendment to MahaRERA where they should be able to order OC, clearances to be done on time, mandate all those things. So you bring under the purview of MahaRERA both aspects against the developers, pro the consumer, pro the transaction completion in a proper manner, but also the bureaucracy as in many cases the bureaucracy has been at fault and we need to get those orders issued immediately in order to have a fair MahaRERA to take place. I think in the long run we are all going to benefit provided the transparency increases, which will result in more investments coming into India. More investments will come in as transparency and methodologies will increase. We do find lot of investments coming into these kinds of projects which will ultimately be clear. Of course there are huge problems in the industry in terms of the cost of land, cost of development, and cost of approvals, among others. Of course, the ease of doing business though has improved, but it has not really functioned in a holistic manner to make projects happen wonderfully. We are looking forward to the change to take place in terms of regulation to make it fair and equitable to both sides of the coin.”

Intelligent planning

In a similar vein, Manoj Daisaria said that due to the MahaRERA provisions a lot of discipline has come in the industry. “When we commence the project, we are thinking of its completion. This had never happened in real estate industry until now. However, because of MahaRERA now even the date of completion of a project we have to decide on the date of its commencement. You have to configure your flats, the location of the building, otherwise the customers were at mercy of developers, locations of buildings were also changed during course of construction. Maybe the customer was having a garden facing flat and that garden itself was shifted to some other location. So these issues now are gone. If there is a 10 building concept you have to conceptualise your layout where your garden is going to be, where your internal access will be, where your swimming pool will be, all that disclosure has to be on Day-1. You know whatever flats you are buying you are buying a swimming pool facing flat it will be there only. All these good things have come in MahaRERA and disclosures have come in.”

On the other hand, there are issues with the policy as a developer cannot change the plan without consent of the purchasers if they have sold more than 51 per cent of the project, he points out. “Besides, there are issues where suppose there is amalgamation of flat which you had not envisaged while starting the project, these issues the government needs to address. The second issue pertains to the inclusion of rehabilitation under the MahaRERA provisions for which the state government has given assurance. However, that has not been implemented and the existing members are still high and dry as they are not covered in the provisions of MahaRERA. Only new purchasers who are buying from a developer they are covered. So we should urge the government because the majority development in Mumbai is redevelopment. That has to be sensitive to the existing guys who are moving out in the transit accommodation and they have to be shifted in the new house and their needs need to be covered in the MahaRERA provisions and we hope this new rule will be amended as early as possible,” he says.

Seconds, Jitendra Mehta as he points out that RERA has given credit to developers who have a good reputation in the market. “On the Day-1 itself, we are able to know what profit we are going to make from this particular project. So we had all the data ready of construction and sales, among others. It will be a game changer in the days to come,” he says.

The space-starved city of Mumbai will witness tremendous vertical growth. As open spaces are not readily available, greenery is also likely to grow vertical.

While speaking about the vertical green buildings in Mumbai, Hiranandani says that in Powai, the company has built three Platinum-rated projects, which is the highest rating of green building. “We already construct green buildings and all the other buildings are rated green but they may not be high rated as far as all buildings are concerned. Over a period of time, we have got the idea that the cost of making a green building is not as high; it is just 5-10 per cent higher, sometimes even 15 per cent, than what would be the otherwise costing. But you really recover the cost of that green building, additional investment cost over a period of 3-4 years depending on the type of rating you are trying to target. By and large efficiency beyond that over a lifecycle of the building is extremely high. So making green is not only extra cost but it is actually economical and viable in the long run,” he says.

Further, he said that they are doing more and more green buildings and the industry is also following this pattern. “ While cost wise it may be high, but the recovery is very fast and that is why more and more people and companies are now moving towards green building. Even the governments have moved in to start creating green buildings in terms of it and some of them will be soon included in the rules and regulations that the government is proposing for the future building developments. Over a period of time, the government will make it compulsory. Also, solar requirements in terms of renewable energy are also being made mandatory in terms of townships and other places. This is a positive sign we see as far as this is concerned and most of the developers are also building large number of gardens and other areas in terms of it and taking up the corporate social responsibility (CSR) activities. We have done a huge amount this year and we hope that we will continue to do and participate with the government in terms of their program for the purposes of doing greening of Maharashtra forest cover. I think it is a very positive move and it is working extremely well in India, Maharashtra in particular and I think all over India this is being taken up.”

While sharing his views, Daisaria said that Mumbai needs to conserve energy and the government is already sensitive on this issue. “Now any development beyond 5,000 square metres of built-up area requires to comply with all the environmental regulations even once the building goes tall for a high-rise also, environmental issues are being addressed too. And I think in the future we need to conserve resources such as energy, water and electricity, all these are part of the system. Otherwise Mumbai will not survive. This is one important aspect we need to look into and green building is the future of this city,” he sums up.

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