 "The year was a mixed bag for the real estate industry as housing supply slowed down but record investments came in. Industry experts believe that demand will stabilise as sales are likely to be lower compared to 2023.")
Experts tracking Mumbai’s real estate bet that housing demand will continue improving in the next couple of years as 13,000 old and dilapidated buildings in the city are set to be audited for possible redevelopment.
State-run Maharashtra Housing and Area Development Authority (Mhada) has appointed structural consultants for auditing the buildings, which are called ‘cessed’ in its parlance. It has asked its engineers to issue notices for the buildings that fall under the Mumbai Building Repair and Reconstruction Board’s jurisdiction.
“These measures will strengthen the administration of Mumbai’s cessed buildings, ensure timely redevelopment, and improve living conditions for residents,” said Mhada in the notices. ‘Cessed’ are old, dilapidated and tenanted buildings constructed in Mumbai before September 1969 and for which Mhada collects a repair cess.
Mhada has audited 171 such buildings and received reports for 32. “These ageing structures hold great potential for developers. To capitalise on these opportunities, developers should track Mhada’s findings, collaborate with stakeholders, and ensure projects align with regulations and community needs,” said Siddharth Vasudevan Moorthy, managing director, Vascon Engineers.
Mumbai’s redevelopment market is worth more than Rs 30,000 crore, and according to the Municipal Corporation of Greater Mumbai any building over 30 years old can be redeveloped.
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Land for homes
Slum cluster Dharavi and British-era BDD chawls in Central Mumbai are being redeveloped, as in other places of city are evaluated for the same purpose. Surplus land in Dharavi and BDD chawls will be used to construct multi-storey buildings for free sale, the portion of a redeveloped property that a developer is allowed to sell in the open market at market rates.
“The government recently announced this (Mhada) plan, and it will take a few years for this new supply to reach the market,” said Anuj Puri, chairman of Anarock Group, a real estate consultancy.
Open land is scarce in Mumbai and various redevelopment projects won’t create a glut. “Oversupply is not a guaranteed outcome due to the strong demand scenario, particularly in certain segments. In premium locations such as South Mumbai and Bandra, demand remains robust, ensuring that new supply is absorbed over time,” said Shveta Jain, managing director - residential business, Savills India.
Mumbai is India’s largest housing market, where 96,187 units were sold in 2024, an 11 per cent year-on-year (Y-o-Y) increase, according to Knight Frank India.
Anand Moorthy, co-founder and chief business officer, capital market and services at Square Yards, said housing oversupply is unlikely given that the vacancy rate for ready units is below 5 per cent.
Price correction
Realtors do not expect a significant decline in prices either. “If a substantial number of redeveloped units enter the market, there could be downward pressure on prices, particularly in the affordable and mid-market segments, if supply exceeds demand. However, given the limited land availability in South and Central Mumbai and consistently high real estate demand in these areas, a significant price correction is unlikely,” said Swapnil Anil, managing director, advisory services, Colliers India.
In 2024, average residential prices in Mumbai increased by 5 per cent Y-o-Y to Rs 8,277 per square foot. Developers may take a cautious approach to pricing, considering the demand-supply dynamics.
“A price correction could occur if supply significantly exceeds demand. However, given Mumbai's historical resilience and consistent demand for luxury properties, any adjustments are likely to be moderate,” said Rahul Thomas, whole-time director, Suraj Estate Developers.
For redeveloping cessed buildings, realtors receive an incentivised floor space index (FSI) of 50 per cent over the FSI consumed to house existing tenants. A redevelopment project can generate 20-30 per cent earnings before interest, taxes, depreciation, and amortisation margins, making it a viable business model.
“The Maharashtra government has not only reduced premiums for converting leasehold land to freehold from 15 per cent to 10 per cent, and to 5 per cent for self-redevelopment on government-owned land but it has also eased the approval process,” said Moorthy.
Redeveloping cessed buildings is challenging. Many of them are small and most come under the Rent Control Act.
Explaining the complexities, Gulam Zia, senior executive director at Knight Frank India, said, “Cessed building redevelopment is a big mess. While Mhada collects the cess, the buildings come under its jurisdiction because owners either lack the financial means or refuse to pay repair charges, despite collecting rents as low as Rs 25-30 or Rs 100. As a result, they often abandon these buildings.”
But developers who understand the intricacies of cessed projects —tenant negotiations, regulatory approval, financing — will be well-positioned to drive this transformation, said Amit Jain, chairman and managing director of Arkade Developers.
“The future looks bleak, at least for now. There are dozens of such surveys happening all the time, but I am unsure if they will lead to concrete results or policy changes,” said Zia.
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