Mumbai, World’s 2nd Most Crowded City, to Get More Land for Houses

The catch: the current owner will have to pay the government 40% of the land cost as a surcharge.

Mumbai, the world’s second most crowded city, will get more land to build homes even as developers are saddled with unsold inventory and town planners want policymakers to focus on improving infrastructure first.

The Maharashtra cabinet has allowed construction on unused industrial sites across cities, including the state capital Mumbai. The objective, it says, is to build more homes under the prime minister’s urban housing scheme.

A fifth of the saleable space unlocked by the policy will be used for affordable houses. The rest can be developed to sell apartments and business blocks at market rates. There’s a catch though: the current owner will have to pay the government 40 percent of the land cost as a surcharge.

The state’s policy will boost efforts to create new housing stock in the nation’s financial capital. That comes after a push to redevelop about 20,000 old buildings in the city by lowering the consent requirement and offering builders a higher floor space index – saleable area – and the possibility of freeing up salt pans for housing.

It’s dangerous to unilaterally convert everything into housing without any assessment of demand, supply and its impact, Amita Bhide, dean at School of Habitat Studies, Tata Institute of Social Sciences, told BloombergQuint.

“There is a construction mania in the country. We have to be clear about our priorities. Is it increasing income or only about housing? Both should go hand in hand.”

Mumbai, according to 2012 studies by the municipal corporation, has 5,540 acres of industrial land. That’s about 37 average-sized golf courses. No official data or estimates are available on how much of it is unused.

The land was acquired more than three decades ago at nominal rates to set up industries and create jobs. Over the years, many units migrated or shut down for economic and environmental reasons.

Godrej Group’s land along the Eastern Express Highway and state-run Richardson & Cruddas Ltd’s property in Byculla could be classified as unused industrial sites in Mumbai, according to Niranjan Hiranandani, president of National Real Estate Development Council and head of the Hiranandani Group.

Others include Raymond Ltd’s land in Thane, small and medium-sized industries in the Thane-Kalwa belt and industrial areas in the interiors of Pune and Nagpur, he said.

Emailed queries to Godrej Industries Ltd and Raymond remained unanswered. DK Jain, additional finance secretary tasked with framing the final rules, declined to comment.

The move to free up industrial land for residential and commercial use comes when supply outstrips demand in the wake of note ban and the new housing regulation.

About half the 50,329 ready units registered under the Real Estate Regulation Act in May remained unsold till 4 October, according to data from property consultant JLL. Of around 1.80 lakh units each in suburban Mumbai and Thane, again 50 percent were unsold.

Prices remain high in the country's second-biggest real estate market. An average one-bedroom apartment in Mumbai is quoted for Rs 65 lakh in the suburbs and can go up to Rs 3.5 crore in the city, according to listings on Magicbricks, a real estate portal.

As a result, most new projects cater to the affordable homes category as developers look to capture demand from buyers who get an interest subsidy under the Prime Minister Awas Yojana (Urban).

Extension Of Existing Rules

The statewide policy builds on existing rules in the Maharashtra Regional and Town Planning Act. It allows conversion of an industrial zone into residential or commercial areas after getting a no-objection certificate from the labour commissioner.

The government kept receiving proposals from landowners for donating, selling or renting out such land, a senior official involved in preparing the new policy told BloombergQuint requesting anonymity. The state decided to release land for real estate, he said.

“Earlier, it worked on a case-to-case basis,” said Shantilal Kataria, president at developers’ lobby group MCHI-CREDAI. “Now, the government has come out with a policy.”

Hiranandani said it’s no longer at the discretion of officials. “The government has now made it very transparent.”

The affordable housing units on the industrial land will be sold through the Maharashtra Housing and Area Development Authority. The agency itself builds apartments and sells them through a lottery once every two years. And most new MHADA buildings come up in the suburbs.

“What this (new policy of converting industrial land) does is open affordable housing options within the city limits instead of the outskirts,” said Kataria.

Needed Schools, Open Spaces

That throws up a challenge for civic authorities as it will add pressure on public services. More so in Mumbai, ranked the world’s second most densely populated city by the World Economic Forum based on United Nations data.

“There is a shortage of schools, hospitals, open spaces, so why only cater to the shortage of housing,” said Pankaj Joshi, executive director at Urban Design Research Institute.

“The difference between this being good or bad is how you plan it. If they plan with proper amenities, this is a brilliant move; but if they don’t, then we are in for a serious trouble.”

Chandrashekhar Prabhu, a town planner and former MHADA chief, agreed that there was a need to assess the impact of additional housing on infrastructure.

If so many people come to stay, how many cars would there be? What is the size of the roads? What’s the capacity of the drainage lines? What about the solid waste management? What about other amenities like schools and hospitals?

Chandrashekhar Prabhu, Former MHADA Chief

Then there is the question of communities from whom the land was acquired. There have been demands to return the unused industrial land to original owners.

The land to was acquired to set up industries and create jobs, and people will buy houses if they are employed, said Prabhu. “Why are people not buying houses in Mumbai? Because they don’t have that much money. That’s led to an inventory pile-up. Who are you building these houses for? Cement manufacturers? Steelmakers? Builders?”

(The article has been published in an arrangement with BloombergQuint)

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