Emerging Real Estate Market in Mumbai

Emerging genuinely soil Market in MumbaiIntroductionIndia has firmed up its drift in the world production line quadruplet prompting global business houses to sit up and take a fresh view on India as a business and investment destination. In the uttermost deuce years, Indian economy has enceinte well despite natures fury or otherwisewise global adverse events. India is fast establishing itself as an alternative to china in a variety of orbits, particularly IT-ITES, manufacturing, and echt commonwealth. The most spectacular revivification has been that of the real estate sector, which is back in business with a bang. saucily projects, superior prize product, new proceeds corridors, increased infrastructure spending, amounting damage of finance and interest, and ontogenesis capa urban center of common man in the key reasons behind the starchy emergence in real estate grocery store. With acquit commercialiseplace being extremely volatile, investment in real es tate has begun to look beautiful and war deal with typical yields of 10-12% per annum be realizable, even though specific shine is always linked to property specific factors, dynamics of real estate commercialise and the boilersuit economical performance.Real estate is fast turning step up to be a compulsive investment bet as comp ard to other investment vehicles much(prenominal) as capital and debt markets, bullion market etc. It attracts investors by offering a possibility of stable income yields, mode enjoin capital appreciation, tax structuring benefits and spunkyer(prenominal) bail being tangible asset. With these prime factors thither atomic lean 18 some(prenominal) micro factors responsible for the returns on investment and those argon location of the property in openhanded and micro context, the usage of property, the quality of tenant, the capital value and achievable rental, the prevailing structures of property tax and stamp duty.The study accepts the ma cro economic factors that make India a favourable investment destination. The purpose of the study is to give a comprehensive overview of the emerging Real Estate market of Mumbai. Todays market is at a stage of ambiguity so a dilate study is required in this respect. In the final report elabo p turn up analysis exiting be carried turn up by fragmenting the market into residential, Commercial and sell space. An overview of each of these markets is include in the current report. The study will also include what are the mingled financing options in the emerging markets currently. A contingented survey will be carried out for the final report found on a questionnaire and will be send out to the various players ( undercover Equity funds, Domestic Financial institutions, Local Real Estate Developers and property Consultants to assess the various options available for Fund raising. Currently an introduction is also included on the same.Characteristics of the Real Estate Market in IndiaWith reference to the availability of infrastructure facilities, avocation cities are currently attracting MNCs/ corporal/real estate developers storey I cities, Mumbai (Commercial hub), Delhi (Political hub) and Bangalore (Technological hub)Preferred option for many new market entrantsCommand the highest international profiles and crucial proportion of FDIOffer qualified labour pool and the better(p) infrastructure facilitiesExhibit development of sub-urban m starymaking(prenominal)-grade real estateYield of 9.5 10%(Real Estate Sector The India Story Submitted by Miss Sonia Sahni Asst Manager incarnate and Investment confideing, ABN AMRO Bank, Nariman Point, Mumbai)2.0 Macro-Economic Factors IndiaBackground of the Economy of India during 2008 and early 2009Last year 2008 was quiet a shock for the real-estate sector in India subsequently the flesh out of the previous tercet years where the property market registered a return of more than 30-40% every year. The sector had confront a down trend where the property prices corrected by over 30%. This was due to the sub-prime crisis in the United States and also the correcting Capital Markets and bankruptcy of the MNCs and the Banks. This resulted in loss of liquidity and hence a fall in demand. In August 2008 the inflation reached as high as 13% which force a knee jerk reaction from the RBI (Reserve Bank of India) to cut the cash reserve ratio, the repo and the reverse repo rate which warranted the Banks to lend less and as a result of the further deficit in liquidity the real-estate market took a plunge.However, the economy has regain by leaps and bounce and which is reflected by the map be commencementsurface-to-air missile Mahtani, emerging equities manager at FC, is confident on Indias economic prospects. Over the next 10 years, UBS estimates economic activity in India will increase by around 8.5% a year, a rate comparable with China and beyond the global average. We think that this maturement rate could be achievable if Indian policymakers go away to undertake structural reforms in the economy.Over the next five dollar bill years, the government is committing an estimated US$500 billion to road, rail, port and other vitally regarded upgrades. If the function legislation is put in place and managed effectively, this could re march the springboard for long-term economic growth rates in excess of Chinas, he believes.GDP of IndiaThe chart shows that the GDP growth rate of India and China are faraway ahead than any other solid ground in the world. This shows that the standard of living in the country is high. GDP reflects the add together income, the sum output and the total disbursal of the country. The economy of the country is the twelfth largest in the world as per the recent market qualify rate and it is ranked number four as per buying power parity. It is the 2nd fastest growing economy in the world. The service sector of India contributes more tha n 50% to the GDP and real-Estate sector is the third largest among it. Mumbai is the sole largest subscriber to the national GDP and the economics of Mumbai further supports the fact.The in a higher place figure shows the long term growth rate of GDP of India against the Developed counties of the World.Economy of India (mid 2009) and its impact on Real EstateHowever the economic condition of the country has improved in the pull through year. This was a great precedent for the Real-estate sector in India and especially Mumbai. It has always been witnessed during recession that the financial cities of the world take the hardest hit but on the other hand recovery is quickly as well. The inflation rate in India is 0.30% on 1st December 2009. The CRR is 5% and repo rate is 4.75% and reverse repo rate 3.25% which is commendable and which has increased liquidity in the market and as a result of this the property prices conquer gone up in the country. The stock market has recovered exc eedingly well and it had an almost 50% ski lift than the last years index. This has further increased the confidence amongst the analysts and the investors. In Mumbai the property rates select accelerated and it is non far behind the rates which were witnessed during the boom period. Mumbai has seen a constant price in the property prices since mid 2009 due to the strengthening of the economy. cum CBRE report 2009By 2030 India will need up to 10 gazillion new housing units per year. Rapid commonwealth growth, rising incomes, decreasing household sizes and a housing shortage of currently 20 million units will call for extensive residential construction. The financing of owner-occupied housing in particular holds out enormous market potential. (Deutsche Bank Report May 8, 2006). tribe in IndiaIndia is the 2nd most populated country in the world at present after China. However, as per the numbers projected in a United Nations Report states that the Indian race would be more than the Chinese population by 2050.(Population of India is also set to take over China by 2050 as per the UN report.)1.0 MUMBAI OVERVIEWMumbai, the capital metropolis of the state of Maharashtra, is the one of the largest metropolis in India. Known as the financial capital of the country, the city contributes almost 5% of Indias GDP. It is a multi-functional city with a vast array of economic opportunities, which has resulted in attracting a large migratory population from all over. The city sports a highly cosmopolitan environment with an intricate urban structure. Mumbai has long been home to several large international companies and is invariably the first choice for a new ecesis entering India.Demographic PatternGreater Mumbai accounts for 13% of Maharashtras population and 1.2% of Indias population1. The rate of growth of population has gone down but has been higher than the growth rate of Maharashtra.Source Census of IndiaOver 1901-71 period, the population in the is buck city was steadily increasing and was more than that of the suburbs. However, during the last 3 decades the population growth in the is go through city has been negligible whereas that in the suburbs is increasing at a rapid rate. Among the suburbs, the occidental suburbs (ward H, K, P and R) are more densely populated than the easterly suburbs (ward L, M, N, S and T). The following graph indicates the projected population growth in Greater Mumbai.The above graph further illustrates that the population of Mumbai is set of increase manifoldly, as against the other Metros of the country.2.0 MUMBAI REAL ESTATE MARKET OVERVIEWThe is realm city of Mumbai is the commercial capital and economic growth engine of India. Originally composed of seven small is bucks, land reclamation and infill carried out during the 18th and 19th century integrated these islands into a continuous peninsula (Deshpande and Arunachalam,1981). solution as a seaport on the west microscope slide of the Indian peninsu la, Mumbai has steadily diversified its economic base to include value-added manufacturing and financial services. The countrys central bank, the Reserve Bank of India and two of Indias largest stock exchanges, the Bombay Stock Exchange and the National Stock Exchange are all located here. Mumbai accounts for tenth part of factory employment and value-added manufacturing, while the port handles more than trine of the total value of foreign trade (Deshpande, 1996), making the Brihan Mumbai Municipal skunk one of the richest, with a budget of more than USD 1.2 billion (Mohan, 2003), exceeding the budget of gild States and Union Territories of India. This economic growth is sustained by and in turn, drives the steady influx of migrants from outlandish and regional centres of the country.Consequently, the Mumbai Metropolitan Region (MMR) is one of the fastest growing regions of India. Its population increased from 7.7 million in 1971 to 18.3 million in 2001 (Census of India, 2001) a nd is projected to increase to 22.4 million by 2011(MMRDA, 1999). (Journal on HOUSING TENURE FOR THE URBAN misfortunate A CASE STUDY OF MUMBAI CITY by Gaurang Desai and Madhura Yadav).Mumbai has gained immense prominence as one of the growing corporate and IT destinations in India. The Mumbai real estate scenario has been wistful of the burgeoning real estate sector of the country. The city has a mature and demand-led market driven by end users. Investors and HNIs have also been actively investing in various pre-hired properties with insurance, banking, IT/ITES, residential and retail sector occupants. Overall, there has been an increase in demand as well as communicate and an appreciation in the real estate values across various micro markets in the city.Economy of MumbaiThe per capita income of the city is Rs 66,360 which is trio times higher than the national income.It contributes 1/3 rd of the total income tax collection of the country.It contributes nearly 60 % of the total income generated from custom duty of the country.40 % of Indias foreign trade.Corporate tax collection of the city is Rs 40 billion.20 % of the total excise duty collection of the country.Mumbai Metropolitan region generates 5 % of the total GDP of the country.The island city of Mumbai is the economic growth engine and commercial capital of India. A combination of in-migration combined with a severe land shortage has resulted in Mumbai having one of the most expensive real estate in the world. As a result the city faces housing crisis with an estimated 60% of its total population living in spends, conform toing multiple informal housing tenures.Property Index of MumbaiDatabaseThis index is based on minimum database size of 20,000 data points every calendar month and the analysis has been drawn over a period outset Jan09. The prices of properties are obtained across micro-markets through property listings on the website as well as based on nationwide sales force.Index AlgorithmTh e interwoven algorithm takes into account the property prices as base and then factors in the demand and supply of residential properties for each of the cities covered by it. Care has been interpreted to give weight age to cities in line with the size of underlying property market.(Makaan.com)The Real-Estate market of Mumbai can be divided into three types-CommercialResidentialRetail Mall4.1 Commercial Real Estate MarketMumbais commercial market is divided into its traditional business districts and the recently unquestionable business addresses. The Central melodic line District (CBD) of the city is located in South Mumbai and comprises ofNariman Point very much said to be the Manhattan of India, Nariman Point has traditionally been the most attractive location for international companies, in particular international investment banks, insurance companies and consulting firms.The countrys operose within a gas constant of 1.5-2 km around the CBD are termed as the off-CBD l ocations, which includeChurchgate /Fort/ Fountain This district has traditionally ho employ the citys moving in and political science establishments. It also houses numerous National and International Banks.Cuffe Parade in the beginning an up market residential firmament with a host of high-rise buildings. Some celebrated commercial buildings same(p) the World Trade Centre and shaping machine Towers are located here.Ballard Estate A prime commercial world where the buildings have European Renaissance architecture.The off-CBD business centres of the city have expanded to include a number of areas mostly oriented towards central Mumbai deject Parel This industrial belt of Mumbai is transforming itself into a commercial hub of the city. This area is being developed on what utilize to be the textile mills. With mill land being freed for commercial, retail and residential development, the Lower Parel area will see massive supply of space. Currently, there are a number of retai l, entertainment and advertising companies located in Lower Parel. postgraduate bridle-path at Phoenix move is the most prominent retail development in this region.Worli-Prabhadevi The WorliPrabhadevi area has been a conventional stronghold of number of corporate piazzas. alike, there is also the presence of two malls Crossroads and Atria, in the stretch. The on-going Bandra-Worli sea link is evaluate to give a further fillip to this area.The Suburban Business Districts (SBDs) of the city comprise of the following locations(Image of the Bandra Kurla Complex)The Bandra-Kurla belt The Bandra-Kurla Complex (BKC), which has been developed as an alternative business district to the CBD, has attracted a number of corporate. ICICI, National Stock Exchange, Wockhardt and ILFS are some of the important corporate located here.The Andheri-Kurla Belt This area is also an upcoming location of choice for IT/ITES companies, banks, insurance companies, etc. Some of the sought after Grade A buildings in this belt are Technopolis and longanimity Corporate Park where a number of corporate are relocating.The Malad-Goregaon Belt The Malad Goregoan belt has pose the preferred destination for IT/ITES companies due to the availability of large al-Qaida plates at competitive rentals. The superior quality of buildings offered at Mind blank shell is some other motivating factor for engineering companies looking for world-class amenities to come here.The Powai Belt some other suburb, the Powai belt is scoring well on the IT/ITeS front. The pricing in rental terms is homogeneous for Powai and Malad. there will be 600 new shopping centres by 2010. Indias burgeoning middle class will drive up nominal retail sales through 2010 by 10% p.a. At the same time, nonionised retail is becoming more important. At present organised retail accounts for a unmixed 3% of the total by 2010 this share will already have reached 10%. (Deutsche Bank Research 6 may,2006)The Peripheral Business D istrict (PBD) of the city consists ofNavi Mumbai Navi Mumbai is being developed as a counter attraction to Mumbai, with the basic objective of curbing further congestion in the city. The potential target audience, obscure from the subsisting residents, arises from the 40,000+ IT/ITES effort workforce travelling to Navi Mumbai daily. Consequently, the government has undertaken a number of initiatives to promote further development of IT ITES sector in Maharashtra state. These include formulation of a progressive sector-specific policy, development of IT parks and development of the Knowledge Corridor between Navi Mumbai and Pune. Sector 17 of Vashi and CBD Belapur were developed as the prime commercial areas for Navi Mumbai. A number of corporate have moved to Navi Mumbai, the largest amongst them being Reliance Industries. Millennium Business Park at Mahape and Airoli Knowledge Park at Airoli, developed by MIDC houses several IT/ITES companies like Aptech, CMS computers, Datamat ics, Mastek, TCS, Patni etc4.2 Residential Market ScenarioResidential real estate in Mumbai is today amongst the most expensive in the country.The key residential areas in the city are as followsThe south and central locations of the city like Colaba, Napean sea Road, Worli, Breach Candy and Pedder Road are the most preferred locations for leased accommodation for the senior(a) and expatriate staff.Amongst the key suburban locations, Bandra and Malad in the atomic number 7west and Powai in the northeast are equally preferred due to proximity from the emerging commercial/office locations.Other suburban residential micro-markets of Andheri, Goregaon and Mulund also fall in the preferred category. In fact, these areas are witnessing fresh construction activity with projects from prominent residential developers like K.Raheja, Oberoi Constructions, Royal Palms and the Runwal Group.Luxury housing projects, which have been traditionally concentrated in South and selective Central Mumba i locations, are now being planned in the suburban regions like Malad as well as peripheral districts. Currently, a number of IT/ITES companies have located there.The Central Mumbai belt consists of areas such as Mahalaxmi, Lower Parel, Worli, Parel,Byculla, Chinchpokli, Sewri, Wadala, Dadar, Matunga and Mahim.The micro markets of Worli are currently established markets and command a premium over other central Mumbai pockets. The current ongoing rates in Worli castrate between Rs. 25,000-30,000 per sq. ft.Lower Parel is fast emerging as a residential and commercial destination, with additional supplies expected from the mill lands.4.3 Mumbai Mill Lands(Image of an old Mill in Mumbai)Bombay had first developed as an industrial city through the growth and expansion of the cotton textile industry from the late cardinalth century to the nineteen forties. Now known as the Mill Lands, the textile industry was located in the central districts of the Island City. After World War II and In dependence, to the fifties, hexadties and seventies, the industrial base of the urban economy diversified into petroleum and chemic production, and then into petrochemicals, pharmaceuticals, consumer goods and engineering industries. These new industries were mostly located on the eastern fringe of the Island City, in the Eastern suburbs, and in the seventies and eighties expanded to Thane and its meet district, as well as the Thane-Belapur belt flanking Navi Mumbai.Till the late seventies, the Cotton material mill were booming with activity but in 1982 things changed. The unorganized Powerloom sector had taken over and it was becoming uneconomical to maintain large-scale industrial units within the city limits on account of high power and Octroi costs. Moreover, the 18-month long disabling strike by the mill workers proved to be the final nail in the coffin. whole this led to huge losses and the running of the Cotton Textile Mills became unviable. Several mills were declared sick and a few even unsympathetic down their operations. Only a few managed to survive.The total area occupied by all the mills put together is approximately 605 acres (2,446,278.39 sq. mt.) on that point are three categories of ownership of the mills, namely, National Textile Mills (NTC), Maharashtra State Textile Corporation and Private Owners4.4 Mumbai embrasure Trust LandThe proposed release of Mumbai Port Trust (MbTP) land could change the face of the eastern waterfront in Mumbai.MbPT has about 40 acres of surplus land of which a substantial portion is on the environmentally sensitive eastern waterfront (areas such as Sewri, Wadala). outsized tracts of MbPT land had been leased out to private companies, several of whom have shifted their facilities to other areas, but tolerate to maintain a token presence on the leased land.With the construction of Trans- Harbour Link and the Special Economic Zone at Dronagiri this land is expected to turn out into a virtual goldmine. The Mb PT policy for commercial utilization of this land has been awaited for several months since the new board of trustees were not constituted. Now with 17 of the 21 trustees in place, the process of formulating the policy has been set in motion. The subcommittee is expected to unveil a plan of action when MbPT board meets on August 9.Besides the above, there are some Port Trust while that are being released in the market. These include a 28.39 hectare (approx. 70 acres) plat at Titwala, unoccupied lands in isolated pockets totalling to 5.17 hectare (approx. 14.5 acres) and a slum-encroached plot measuring 6.77 hectare (approx. 17 acres) on the eastern waterfront.Floor Space Index (FSI)FSI stands for Floor Space Index. Municipalities and Governments allow only a certain amount of FSI. otherwise there are possibilities of sky scrapers been constructed in narrow spaces that would be leading to parking and various other problems like the one existing in business district Manhattan. In Mumbai, FSI was first introduced in 1964 and the value than was 4.5 times. Over the years there were several changes make to the rule which depends broadly on the leading Municipal Corporation and the State Government.With an average of 2.9 m2 per person, the consumption of residential storey space in Mumbai is one of the final in the world. More than 50% of the citys population lives in slums. This type of record would be expected from a city in a desperate economic situation. However, this is not the case. Mumbai is a prosperous city with an expanding economy. (Mumbai FSI conundrum The perfect storm the four factors restricting the construction of new cornerstone space in Mumbai By Alain Bertaud 2004).The very low consumption of floor space coupled with very high real estate prices would suggest that a number of supply bottlenecks might be responsible. By comparing Mumbai to other metropolis in Asia it appears that indeed 4 factors are exceptional and contribute to the very lo w supply of floor spaceAn exceptional topography that reduces the amount of developable landA draconian and ill-conceived land use policy restricting the area of floor space which can be built on the pocket-sized land available.Muddled property rights preventing households and firms to freely trade land and floor space as a commodityA failure to develop major primary infrastructure engagements, which prevents the city to overcome its topographical constraint. In turn, the weakness of the infrastructure network is apply to justify the restrictive land use policy. (Alain Bertaud July fifteenth 2004).Comparing Mumbai to other similar sized Asian cities, (Bertaud 2004) found that within a radius of 25 km from the city centre, sea and water bodies withdraw 66% of the total area for Mumbai while it was 22% in the case of Jakarta and 5% for Seoul. Cities with such extreme topography often compensate for the lack of land by allowing the height of buildings to be increased. In the case of Mumbai however, this is not the case. While the Floor Space Index (FSI) in most large cities varies from 5 to 15 in the Central Business District (CBD) to about 0.5 in the suburbs, in Mumbai the FSI remains uniformly fixed at 1.33 for the Island City and 1.00 in the suburbs (Alain Bertaud, 2004).(The above subroutine shows the different FSI values in the city.)Transfer of ripening Rights (TDR)A cartelisation of Mumbais real estate, one of the costliest in the world, in the matter of transferable development rights has put upwardly pressure on prices and has also caused concern in policy circles.In case of Mumbai, TDRs were used initially to compensate plot owners whose development right was limit due to some public programmes like widening of roads etc. Later this was used for compensating owners of Heritage buildings who could not develop their lands. More recently they have been used in case of Slum Redevelopments where additional development rights could not be consumed on a plot due to over density reasons. There are also talks about using TDR for restoration of old buildings. Another detail about TDR is that it can be only used in the same or northern ward of the generating plot Hence you could see sudden additions to suburban buildings that have high property value.However, it also led to mucky and unplanned development in the suburbs. There was an increased the pressure on suburban infrastructure.In a recent development, just six-odd builders and developers hold 70 per cent of the 2.5-3 million sq ft TDR available. The price of TDR has also surged to Rs 2,500-Rs 3,000 per sq ft from Rs 800-1,000 sq ft in the past six months.Realty sector experts in Mumbai cartel had meant a rise in TDR prices practically every month. The development is a sequel to a 2008 ensnare of the High Court here, which stayed a state government decision to allow 33 per cent extra building rights (measured as more of Floor Space Index, or FSI, the ratio of what can be ere cted on a plot of land to its area) in return for more premium.Nainesh Shah, executive director of Everest Developers, argued that TDR rates can be brought down only by an increase in the stock of land and the government are the only entities that can make this happen. More land needfully to be released,Ashutosh Limaye, associate director, strategic consulting, Jones Lang LaSalle Meghraj, saidTDR trading follows the outdoors market principle. For areas that are popular and in demand for real estate development (Bandra, Chembur, repellant Parle, etc), land prices is high and it makes sense to buy TDR even at a higher rate.However, A Vile Parle-based activist and former builder, Bhagwanji Raiyani, filed a general Interest Litigation in the Bombay High Court ask for a total ban on TDR, following which the court in an interim order banned the use of TDR along the Eastern and Western programate Highways and the Eastern and Western suburban railway tracks.In the recent times, the g overnment is considering a end to increase floor space index (FSI) in the suburbs to two without taking the transfer of development rights (TDR) route. Under this, for example, a builder involved a slum project in Trombay gets the nod to transfer development rights to the north of the rehabilitation site. Because of this policy, the suburbs are witnessing the construction of tall towers, which use TDR.There has been a 100% rise in property prices in Mumbai, Thane and other places, primarily because of the high cost of TDR. If a builder buys TDR at Rs 4,500 per sq ft, he will have to add another Rs 4,500 per sq ft towards the cost of land and construction. This forces him to sell flats at Rs 10,000 per sq ft even in a distant suburb like Mulund, which is an absurd rate. No appreciation there is tremendous consumer resistance. Around 50% of the flats remain unsold because the prices are beyond an average buyers reach, (Subhash Runwal, former office-bearer of the Maharashtra Chamber of Housing Industry, describe in Times Of India).The demand for FSI is 10 crore sq ft per annum in the suburbs. If the government sells this at even Rs 2,500 crore, it can generate a whopping Rs 25,000 crore annually. Half of this revenue enhancement can be used for improving infrastructure in the suburbs and the rest for development work in the rest of the state.The Golden QuestionHow to design new FSI and TDR values for Mumbai? be after a spatial land use strategy based on current land values and future investments in transport (bridges, highways, metro, BRT). Identify high accessibility nodes.Divide the existing and future built-up areas into land use zones based on accessibility and on existing division of the areaIdentify and map the historical areas and natural areas that need to be protected, those that should not be redeveloped, and where the new FSI will not be appliedDesign regulations (FSI, % lot coverage, setbacks, etc) for each zone.Comprehensive plan ready and pass for the entire cityNo more TDRs are issued during preparation of plan, however, already issued but not yet used TDRs are honored.Progressive transition unexampled FSI plan prepared and approved for 2 or 3 main streets and high colour areas around new metro stations and bridge access.New TDRs can be issued but they have to be used in the areas already mapped for FSI increase. slowdown the comprehensive strategy is prepared and approved.More areas for FSI increase are prepared every year and where TDRs can be used.After 2 or 3 years new TDRs are issued only for slum redevelopment and for historical area protection.The above is just a model example of how the increase in FSI would solve the Real Estate problems in Mumbai. If the Government adopt the path which has been used in downtown Manhattan than it would reduce Real Estate prices in the city, assistance to relocated millions of people, abolish the TDR practice and the additional space could be used to improve the lagging infras tructure of the city.4.5 Mumbai Salt Pan Land http//infochangeindia.org/Agenda/Coastal-communities/Saltpan-city.htmlThe proposal of marriage to use saltpan lands first emerged in 2002 when the Maharashtra Housing and Area Development Authority (MHADA) warned that it was running out of land and asked the state to release land belonging to various departments like defence, the Bombay Port Trust, and saltpan lands.In 2006, the then Union look for Commerce and Industries Kamal Nath and Ex Maharashtra Chief Minister Vilasrao Deshmukh worked out a formula of developing saltpan lands on a no-profit-no-loss basis. The scheme proposed allowing private developers extra FSI for commercial purposes after setting aside 225 sq ft houses to accommodate slum-dwellers.In 2007, a committee of uEmerging Real Estate Market in MumbaiEmerging Real Estate Market in MumbaiIntroductionIndia has firmed up its place in the world business space prompting global business houses to sit up and take a fresh view on India as a business and investment destination. In the last two years, Indian economy has grown well despite natures fury or other global adverse events. India is fast establishing itself as an alternative to China in a variety of sectors, particularly IT-ITES, manufacturing, and real estate. The most spectacular resurgence has been that of the real estate sector, which is back in business with a bang.New projects, superior quality product, new growth corridors, increased infrastructure spending, falling cost of finance and interest, and growing capacity of common man in the key reasons behind the steady growth in real estate market. With stock market being highly volatile, investment in real estate has begun to look attractive and competitive with typical yields of 10-12% per annum are achievable, even though specific return is always linked to property specific factors, dynamics of real estate market and the overall economic performance.Real estate is fast turning out to be a c ompulsive investment bet as compared to other investment vehicles such as capital and debt markets, bullion market etc. It attracts investors by offering a possibility of stable income yields, moderate capital appreciation, tax structuring benefits and higher security being tangible asset. With these prime factors there are several micro factors responsible for the returns on investment and those are location of the property in macro and micro context, the usage of property, the quality of tenant, the capital value and achievable rental, the prevailing structures of property tax and stamp duty.The study includes the macro economic factors that make India a favourable investment destination. The purpose of the study is to give a comprehensive overview of the emerging Real Estate market of Mumbai. Todays market is at a stage of ambiguity so a detailed study is required in this respect. In the final report detailed analysis will be carried out by fragmenting the market into Residential , Commercial and Retail space. An overview of each of these markets is included in the current report. The study will also include what are the various financing options in the emerging markets currently. A detailed survey will be carried out for the final report based on a questionnaire and will be send out to the various players ( Private Equity funds, Domestic Financial institutions, Local Real Estate Developers and Property Consultants to assess the various options available for Fund raising. Currently an introduction is also included on the same.Characteristics of the Real Estate Market in IndiaWith reference to the availability of infrastructure facilities, following cities are currently attracting MNCs/corporate/real estate developersTier I cities, Mumbai (Commercial hub), Delhi (Political hub) and Bangalore (Technological hub)Preferred option for many new market entrantsCommand the highest international profiles and significant proportion of FDIOffer qualified labour pool an d the best infrastructure facilitiesExhibit development of sub-urban commercial real estateYield of 9.5 10%(Real Estate Sector The India Story Submitted by Miss Sonia Sahni Asst Manager Corporate and Investment Banking, ABN AMRO Bank, Nariman Point, Mumbai)2.0 Macro-Economic Factors IndiaBackground of the Economy of India during 2008 and early 2009Last year 2008 was quiet a setback for the real-estate sector in India after the boom of the previous three years where the property market registered a return of more than 30-40% every year. The sector had faced a down trend where the property prices corrected by over 30%. This was due to the sub-prime crisis in the United States and also the correcting Capital Markets and bankruptcy of the MNCs and the Banks. This resulted in loss of liquidity and hence a fall in demand. In August 2008 the inflation reached as high as 13% which forced a knee jerk reaction from the RBI (Reserve Bank of India) to cut the cash reserve ratio, the repo and the reverse repo rate which warranted the Banks to lend less and as a result of the further shortage in liquidity the real-estate market took a plunge.However, the economy has recovered by leaps and bounce and which is reflected by the chart belowSam Mahtani, emerging equities manager at FC, is confident on Indias economic prospects. Over the next 10 years, UBS estimates economic activity in India will increase by around 8.5% a year, a rate comparable with China and beyond the global average. We think that this growth rate could be achievable if Indian policymakers start to undertake structural reforms in the economy.Over the next five years, the government is committing an estimated US$500 billion to road, rail, port and other vitally needed upgrades. If the right legislation is put in place and managed effectively, this could represent the springboard for long-term economic growth rates in excess of Chinas, he believes.GDP of IndiaThe chart shows that the GDP growth rate of India and China are far ahead than any other country in the world. This shows that the standard of living in the country is high. GDP reflects the total income, the total output and the total expenditure of the country. The economy of the country is the twelfth largest in the world as per the recent market exchange rate and it is ranked number four as per purchasing power parity. It is the 2nd fastest growing economy in the world. The service sector of India contributes more than 50% to the GDP and real-Estate sector is the third largest among it. Mumbai is the sole largest contributor to the national GDP and the economics of Mumbai further supports the fact.The above figure shows the long term growth rate of GDP of India against the Developed counties of the World.Economy of India (mid 2009) and its impact on Real EstateHowever the economic condition of the country has improved in the last year. This was a great precedent for the Real-estate sector in India and especially Mumbai. It has always been witnessed during recession that the financial cities of the world take the hardest hit but on the other hand recovery is quickly as well. The inflation rate in India is 0.30% on 1st December 2009. The CRR is 5% and repo rate is 4.75% and reverse repo rate 3.25% which is commendable and which has increased liquidity in the market and as a result of this the property prices have gone up in the country. The stock market has recovered exceedingly well and it had an almost 50% rise than the last years index. This has further increased the confidence amongst the analysts and the investors. In Mumbai the property rates have accelerated and it is not far behind the rates which were witnessed during the boom period. Mumbai has seen a constant price in the property prices since mid 2009 due to the strengthening of the economy.Source CBRE report 2009By 2030 India will need up to 10 million new housing units per year. Rapid population growth, rising incomes, decreasing household siz es and a housing shortage of currently 20 million units will call for extensive residential construction. The financing of owner-occupied housing in particular holds out enormous market potential. (Deutsche Bank Report May 8, 2006).Population in IndiaIndia is the 2nd most populated country in the world at present after China. However, as per the numbers projected in a United Nations Report states that the Indian population would be more than the Chinese population by 2050.(Population of India is also set to take over China by 2050 as per the UN report.)1.0 MUMBAI OVERVIEWMumbai, the capital city of the state of Maharashtra, is the one of the largest metropolis in India. Known as the financial capital of the country, the city contributes almost 5% of Indias GDP. It is a multi-functional city with a vast array of economic opportunities, which has resulted in attracting a large migratory population from all over. The city sports a highly cosmopolitan environment with an intricate urba n structure. Mumbai has long been home to several large multinational companies and is invariably the first choice for a new organization entering India.Demographic PatternGreater Mumbai accounts for 13% of Maharashtras population and 1.2% of Indias population1. The rate of growth of population has gone down but has been higher than the growth rate of Maharashtra.Source Census of IndiaOver 1901-71 period, the population in the island city was steadily increasing and was more than that of the suburbs. However, during the last 3 decades the population growth in the island city has been negligible whereas that in the suburbs is increasing at a rapid rate. Among the suburbs, the western suburbs (ward H, K, P and R) are more densely populated than the Eastern suburbs (ward L, M, N, S and T). The following graph indicates the projected population growth in Greater Mumbai.The above graph further illustrates that the population of Mumbai is set of increase manifoldly, as against the other M etros of the country.2.0 MUMBAI REAL ESTATE MARKET OVERVIEWThe island city of Mumbai is the commercial capital and economic growth engine of India. Originally composed of seven small islands, land reclamation and infill carried out during the 18th and 19th century integrated these islands into a continuous peninsula (Deshpande and Arunachalam,1981). Beginning as a seaport on the west coast of the Indian peninsula, Mumbai has steadily diversified its economic base to include value-added manufacturing and financial services. The countrys central bank, the Reserve Bank of India and two of Indias largest stock exchanges, the Bombay Stock Exchange and the National Stock Exchange are all located here. Mumbai accounts for one-tenth of factory employment and value-added manufacturing, while the port handles more than one-third of the total value of foreign trade (Deshpande, 1996), making the Brihan Mumbai Municipal Corporation one of the richest, with a budget of more than USD 1.2 billion ( Mohan, 2003), exceeding the budget of nine States and Union Territories of India. This economic growth is sustained by and in turn, drives the steady influx of migrants from rural and regional centres of the country.Consequently, the Mumbai Metropolitan Region (MMR) is one of the fastest growing regions of India. Its population increased from 7.7 million in 1971 to 18.3 million in 2001 (Census of India, 2001) and is projected to increase to 22.4 million by 2011(MMRDA, 1999). (Journal on HOUSING TENURE FOR THE URBAN POOR A CASE STUDY OF MUMBAI CITY by Gaurang Desai and Madhura Yadav).Mumbai has gained immense prominence as one of the growing corporate and IT destinations in India. The Mumbai real estate scenario has been reflective of the burgeoning real estate sector of the country. The city has a mature and demand-led market driven by end users. Investors and HNIs have also been actively investing in various pre-leased properties with insurance, banking, IT/ITES, residential and re tail sector occupants. Overall, there has been an increase in demand as well as supply and an appreciation in the real estate values across various micro markets in the city.Economy of MumbaiThe per capita income of the city is Rs 66,360 which is three times higher than the national income.It contributes 1/3 rd of the total income tax collection of the country.It contributes nearly 60 % of the total income generated from custom duty of the country.40 % of Indias foreign trade.Corporate tax collection of the city is Rs 40 billion.20 % of the total excise duty collection of the country.Mumbai Metropolitan region generates 5 % of the total GDP of the country.The island city of Mumbai is the economic growth engine and commercial capital of India. A combination of in-migration combined with a severe land shortage has resulted in Mumbai having one of the most expensive real estate in the world. As a result the city faces housing crisis with an estimated 60% of its total population living in slums, adopting multiple informal housing tenures.Property Index of MumbaiDatabaseThis index is based on minimum database size of 20,000 data points every month and the analysis has been drawn over a period starting Jan09. The prices of properties are obtained across micro-markets through property listings on the website as well as based on nationwide sales force.Index AlgorithmThe complex algorithm takes into account the property prices as base and then factors in the demand and supply of residential properties for each of the cities covered by it. Care has been taken to give weight age to cities in line with the size of underlying property market.(Makaan.com)The Real-Estate market of Mumbai can be divided into three types-CommercialResidentialRetail Mall4.1 Commercial Real Estate MarketMumbais commercial market is divided into its traditional business districts and the recently developed business addresses. The Central Business District (CBD) of the city is located in South Mu mbai and comprises ofNariman Point Often said to be the Manhattan of India, Nariman Point has traditionally been the most attractive location for international companies, in particular international investment banks, insurance companies and consulting firms.The areas concentrated within a radius of 1.5-2 km around the CBD are termed as the off-CBD locations, which includeChurchgate /Fort/ Fountain This district has traditionally housed the citys Business and Government establishments. It also houses numerous National and International Banks.Cuffe Parade Primarily an up market residential area with a host of high-rise buildings. Some notable commercial buildings like the World Trade Centre and Maker Towers are located here.Ballard Estate A prime commercial area where the buildings have European Renaissance architecture.The off-CBD business centres of the city have expanded to include a number of areas mostly oriented towards central MumbaiLower Parel This industrial belt of Mumba i is transforming itself into a commercial hub of the city. This area is being developed on what used to be the textile mills. With mill land being freed for commercial, retail and residential development, the Lower Parel area will see massive supply of space. Currently, there are a number of retail, entertainment and advertising companies located in Lower Parel. High Street at Phoenix Mills is the most prominent retail development in this region.Worli-Prabhadevi The WorliPrabhadevi area has been a conventional stronghold of number of corporate offices. Besides, there is also the presence of two malls Crossroads and Atria, in the stretch. The ongoing Bandra-Worli sea link is expected to give a further fillip to this area.The Suburban Business Districts (SBDs) of the city comprise of the following locations(Image of the Bandra Kurla Complex)The Bandra-Kurla belt The Bandra-Kurla Complex (BKC), which has been developed as an alternative business district to the CBD, has attracted a n umber of corporate. ICICI, National Stock Exchange, Wockhardt and ILFS are some of the important corporate located here.The Andheri-Kurla Belt This area is also an upcoming location of choice for IT/ITES companies, banks, insurance companies, etc. Some of the sought after Grade A buildings in this belt are Technopolis and Solitaire Corporate Park where a number of corporate are relocating.The Malad-Goregaon Belt The Malad Goregoan belt has become the preferred destination for IT/ITES companies due to the availability of large floor plates at competitive rentals. The superior quality of buildings offered at MindSpace is another motivating factor for technology companies looking for world-class amenities to come here.The Powai Belt Another suburb, the Powai belt is scoring well on the IT/ITeS front. The pricing in rental terms is similar for Powai and Malad.There will be 600 new shopping centres by 2010. Indias burgeoning middle class will drive up nominal retail sales through 2010 by 10% p.a. At the same time, organised retail is becoming more important. At present organised retail accounts for a mere 3% of the total by 2010 this share will already have reached 10%. (Deutsche Bank Research 6 may,2006)The Peripheral Business District (PBD) of the city consists ofNavi Mumbai Navi Mumbai is being developed as a counter magnet to Mumbai, with the basic objective of curbing further congestion in the city. The potential target audience, apart from the existing residents, arises from the 40,000+ IT/ITES industry workforce travelling to Navi Mumbai daily. Consequently, the government has undertaken a number of initiatives to promote further development of IT ITES sector in Maharashtra state. These include formulation of a progressive sector-specific policy, development of IT parks and development of the Knowledge Corridor between Navi Mumbai and Pune. Sector 17 of Vashi and CBD Belapur were developed as the prime commercial areas for Navi Mumbai. A number of corporate have moved to Navi Mumbai, the largest amongst them being Reliance Industries. Millennium Business Park at Mahape and Airoli Knowledge Park at Airoli, developed by MIDC houses several IT/ITES companies like Aptech, CMS computers, Datamatics, Mastek, TCS, Patni etc4.2 Residential Market ScenarioResidential real estate in Mumbai is today amongst the most expensive in the country.The key residential areas in the city are as followsThe south and central locations of the city like Colaba, Napean Sea Road, Worli, Breach Candy and Pedder Road are the most preferred locations for leased accommodation for the senior and expatriate staff.Amongst the key suburban locations, Bandra and Malad in the northwest and Powai in the northeast are equally preferred due to proximity from the emerging commercial/office locations.Other suburban residential micro-markets of Andheri, Goregaon and Mulund also fall in the preferred category. In fact, these areas are witnessing fresh construction activity with projects from prominent residential developers like K.Raheja, Oberoi Constructions, Royal Palms and the Runwal Group.Luxury housing projects, which have been traditionally concentrated in South and selective Central Mumbai locations, are now being planned in the suburban regions like Malad as well as peripheral districts. Currently, a number of IT/ITES companies have located there.The Central Mumbai belt consists of areas such as Mahalaxmi, Lower Parel, Worli, Parel,Byculla, Chinchpokli, Sewri, Wadala, Dadar, Matunga and Mahim.The micro markets of Worli are currently established markets and command a premium over other central Mumbai pockets. The current ongoing rates in Worli vary between Rs. 25,000-30,000 per sq. ft.Lower Parel is fast emerging as a residential and commercial destination, with additional supplies expected from the mill lands.4.3 Mumbai Mill Lands(Image of an old Mill in Mumbai)Bombay had first developed as an industrial city through the growth and expansion of th e cotton textile industry from the late nineteenth century to the nineteen forties. Now known as the Mill Lands, the textile industry was located in the central districts of the Island City. After World War II and Independence, to the fifties, sixties and seventies, the industrial base of the urban economy diversified into petroleum and chemical production, and then into petrochemicals, pharmaceuticals, consumer goods and engineering industries. These new industries were mostly located on the eastern fringe of the Island City, in the Eastern suburbs, and in the seventies and eighties expanded to Thane and its surrounding district, as well as the Thane-Belapur belt flanking Navi Mumbai.Till the late seventies, the Cotton Textile Mills were booming with activity but in 1982 things changed. The unorganized Powerloom sector had taken over and it was becoming uneconomical to maintain large-scale industrial units within the city limits on account of high power and Octroi costs. Moreover, the 18-month long crippling strike by the mill workers proved to be the final nail in the coffin. All this led to huge losses and the running of the Cotton Textile Mills became unviable. Several mills were declared sick and a few even shut down their operations. Only a few managed to survive.The total area occupied by all the mills put together is approximately 605 acres (2,446,278.39 sq. mt.) There are three categories of ownership of the mills, namely, National Textile Mills (NTC), Maharashtra State Textile Corporation and Private Owners4.4 Mumbai Port Trust LandThe proposed release of Mumbai Port Trust (MbTP) land could change the face of the eastern waterfront in Mumbai.MbPT has about 40 acres of surplus land of which a substantial portion is on the environmentally sensitive eastern waterfront (areas such as Sewri, Wadala). Large tracts of MbPT land had been leased out to private companies, several of whom have shifted their facilities to other areas, but continue to maintain a token presence on the leased land.With the construction of Trans- Harbour Link and the Special Economic Zone at Dronagiri this land is expected to turn out into a virtual goldmine. The MbPT policy for commercial utilization of this land has been awaited for several months since the new board of trustees were not constituted. Now with 17 of the 21 trustees in place, the process of formulating the policy has been set in motion. The subcommittee is expected to unveil a plan of action when MbPT board meets on August 9.Besides the above, there are some Port Trust plot that are being released in the market. These include a 28.39 hectare (approx. 70 acres) plot at Titwala, vacant lands in isolated pockets totalling to 5.17 hectare (approx. 14.5 acres) and a slum-encroached plot measuring 6.77 hectare (approx. 17 acres) on the eastern waterfront.Floor Space Index (FSI)FSI stands for Floor Space Index. Municipalities and Governments allow only a certain amount of FSI. Otherwise there are pos sibilities of sky scrapers been constructed in narrow spaces that would be leading to parking and various other problems like the one existing in downtown Manhattan. In Mumbai, FSI was first introduced in 1964 and the value than was 4.5 times. Over the years there were several changes made to the rule which depends broadly on the leading Municipal Corporation and the State Government.With an average of 2.9 m2 per person, the consumption of residential floor space in Mumbai is one of the lowest in the world. More than 50% of the citys population lives in slums. This type of record would be expected from a city in a desperate economic situation. However, this is not the case. Mumbai is a prosperous city with an expanding economy. (Mumbai FSI conundrum The perfect storm the four factors restricting the construction of new floor space in Mumbai By Alain Bertaud 2004).The very low consumption of floor space coupled with very high real estate prices would suggest that a number of supply bottlenecks might be responsible. By comparing Mumbai to other metropolis in Asia it appears that indeed 4 factors are exceptional and contribute to the very low supply of floor spaceAn exceptional topography that reduces the amount of developable landA draconian and ill-conceived land use policy restricting the area of floor space which can be built on the little land available.Muddled property rights preventing households and firms to freely trade land and floor space as a commodityA failure to develop major primary infrastructure networks, which prevents the city to overcome its topographical constraint. In turn, the weakness of the infrastructure network is used to justify the restrictive land use policy. (Alain Bertaud July 15th 2004).Comparing Mumbai to other similar sized Asian cities, (Bertaud 2004) found that within a radius of 25 km from the city centre, sea and water bodies occupy 66% of the total area for Mumbai while it was 22% in the case of Jakarta and 5% for Seoul. C ities with such extreme topography often compensate for the lack of land by allowing the height of buildings to be increased. In the case of Mumbai however, this is not the case. While the Floor Space Index (FSI) in most large cities varies from 5 to 15 in the Central Business District (CBD) to about 0.5 in the suburbs, in Mumbai the FSI remains uniformly fixed at 1.33 for the Island City and 1.00 in the suburbs (Alain Bertaud, 2004).(The above map shows the different FSI values in the city.)Transfer of Development Rights (TDR)A cartelisation of Mumbais real estate, one of the costliest in the world, in the matter of transferable development rights has put upward pressure on prices and has also caused concern in policy circles.In case of Mumbai, TDRs were used initially to compensate plot owners whose development right was restricted due to some public programmes like widening of roads etc. Later this was used for compensating owners of Heritage buildings who could not develop their lands. More recently they have been used in case of Slum Redevelopments where additional development rights could not be consumed on a plot due to over density reasons. There are also talks about using TDR for redevelopment of old buildings. Another detail about TDR is that it can be only used in the same or northern ward of the generating plot Hence you could see sudden additions to suburban buildings that have high property value.However, it also led to haphazard and unplanned development in the suburbs. There was an increased the pressure on suburban infrastructure.In a recent development, just six-odd builders and developers hold 70 per cent of the 2.5-3 million sq ft TDR available. The price of TDR has also surged to Rs 2,500-Rs 3,000 per sq ft from Rs 800-1,000 sq ft in the past six months.Realty sector experts in Mumbai cartel had meant a rise in TDR prices practically every month. The development is a sequel to a 2008 order of the High Court here, which stayed a state gover nment decision to allow 33 per cent extra building rights (measured as more of Floor Space Index, or FSI, the ratio of what can be erected on a plot of land to its area) in return for more premium.Nainesh Shah, executive director of Everest Developers, argued that TDR rates can be brought down only by an increase in the stock of land and the government are the only entities that can make this happen. More land needs to be released,Ashutosh Limaye, associate director, strategic consulting, Jones Lang LaSalle Meghraj, saidTDR trading follows the open market principle. For areas that are popular and in demand for real estate development (Bandra, Chembur, Vile Parle, etc), land prices is high and it makes sense to buy TDR even at a higher rate.However, A Vile Parle-based activist and former builder, Bhagwanji Raiyani, filed a Public Interest Litigation in the Bombay High Court asking for a total ban on TDR, following which the court in an interim order banned the use of TDR along the Ea stern and Western Express Highways and the Eastern and Western suburban railway tracks.In the recent times, the government is considering a proposal to increase floor space index (FSI) in the suburbs to two without taking the transfer of development rights (TDR) route. Under this, for example, a builder involved a slum project in Trombay gets the nod to transfer development rights to the north of the rehabilitation site. Because of this policy, the suburbs are witnessing the construction of tall towers, which use TDR.There has been a 100% rise in property prices in Mumbai, Thane and other places, primarily because of the high cost of TDR. If a builder buys TDR at Rs 4,500 per sq ft, he will have to add another Rs 4,500 per sq ft towards the cost of land and construction. This forces him to sell flats at Rs 10,000 per sq ft even in a distant suburb like Mulund, which is an absurd rate. No wonder there is tremendous consumer resistance. Around 50% of the flats remain unsold because th e prices are beyond an average buyers reach, (Subhash Runwal, former office-bearer of the Maharashtra Chamber of Housing Industry, reported in Times Of India).The demand for FSI is 10 crore sq ft per annum in the suburbs. If the government sells this at even Rs 2,500 crore, it can generate a whopping Rs 25,000 crore annually. Half of this revenue can be used for improving infrastructure in the suburbs and the rest for development work in the rest of the state.The Golden QuestionHow to design new FSI and TDR values for Mumbai?Design a spatial land use strategy based on current land values and future investments in transport (bridges, highways, metro, BRT). Identify high accessibility nodes.Divide the existing and future built-up areas into land use zones based on accessibility and on existing character of the areaIdentify and map the historical areas and natural areas that need to be protected, those that should not be redeveloped, and where the new FSI will not be appliedDesign regu lations (FSI, % lot coverage, setbacks, etc) for each zone.Comprehensive plan ready and approved for the entire cityNo more TDRs are issued during preparation of plan, however, already issued but not yet used TDRs are honored.Progressive transitionNew FSI plan prepared and approved for 2 or 3 main streets and high intensity areas around new metro stations and bridge access.New TDRs can be issued but they have to be used in the areas already mapped for FSI increase.Meanwhile the comprehensive strategy is prepared and approved.More areas for FSI increase are prepared every year and where TDRs can be used.After 2 or 3 years new TDRs are issued only for slum redevelopment and for historical area protection.The above is just a model example of how the increase in FSI would solve the Real Estate problems in Mumbai. If the Government adopt the path which has been used in downtown Manhattan than it would reduce Real Estate prices in the city, help to relocated millions of people, abolish th e TDR practice and the additional space could be used to improve the lagging infrastructure of the city.4.5 Mumbai Salt Pan Land http//infochangeindia.org/Agenda/Coastal-communities/Saltpan-city.htmlThe proposal to use saltpan lands first emerged in 2002 when the Maharashtra Housing and Area Development Authority (MHADA) warned that it was running out of land and asked the state to release land belonging to various departments like defence, the Bombay Port Trust, and saltpan lands.In 2006, the then Union Minister for Commerce and Industries Kamal Nath and Ex Maharashtra Chief Minister Vilasrao Deshmukh worked out a formula of developing saltpan lands on a no-profit-no-loss basis. The scheme proposed allowing private developers extra FSI for commercial purposes after setting aside 225 sq ft houses to accommodate slum-dwellers.In 2007, a committee of u