Maha govt policy to redevelop MHADA colonies won't affect prices: JLL

Maha govt policy to redevelop MHADA colonies won't affect prices: JLL
Mumbai: Real estate consultancy firm Jones Lang LaSalle (JLL) India in its report released last week observed that the state government's new housing policy which focuses on redevelopment of Maharashtra Housing and Area Development Authority (MHADA) colonies and old buildings in suburbs may increase supply of housing but won’t have much impact on prices of homes.

The report, authored by the company’s chief operating officer Ramesh Nair says, “Access to easy finance often dictates the speed of construction activity - and in turn the final price of the product. Banks are usually wary of funding developers for re-development projects because a number of redevelopment projects have got stuck in the past due to legal issues with tenants. Relocating tenants to transit camps has been a controversial issue and in some extreme cases, MHADA had resorted to forceful eviction. So, while supply may increase, the pricing in residential markets may not reduce.”

The state government released its housing policy on September 2. The policy focuses on redevelopment of 104 MHADA housing colonies spread across city and also around 10,000 tenanted buildings in suburbs which are protected by 1948’s Rent Control Act.

The policy offers FSI up to three for redevelopment of housing societies on MHADA land who are occupying less than 2,000 sq.mt. of land and FSI of four to those housing socities which are spread over more than 2,000 sq.mt. land. However to get this additional FSI, builders will have to return housing stock in proportion decided by MHADA.

And for the redevelopment of tenanted buildings, the government has offered 50 percent incentive FSI above basic FSI of 2.50 and also announced to encourage redevelopment of these buildings under cluster development policy of the government which is currently applicable only to island city.

The state government expects creation of housing stock of 30,000 units of affordable housing under the policy.

However, JLL's report points out that construction costs for developers have been on the rise, and will be high for these redevelopments too. With increased ready reckoner rates, the premium to be charged for additional FSI is also likely to be considerable. In addition, the developers need to set aside finances for approval processes, rentals, corpus, relocating tenants as well as for infrastructure in case of cluster developments. Redevelopment is also a cash-intensive exercise, so developers need to be well capitalised to undertake such redevelopment projects and this may affect final prices of homes made available through process of redevelopment.

The report also expresses concerns over redevelopment project placing a heavy burden on the city's infrastructure. It points out that loading the already creaking infrastructure of the Western suburbs with the lure of additional FSI to developers will prove disastrous.