Why Andheri real estate is on shaky ground

Paras Gundecha, president of MCHI-Credai, is frustrated. And so are many Mumbai-based real estate developers. Theunstoppable Mumbai construction business has somewhat hit a speedbreaker. As the president of MCHI-Credai, Gundecha is upset with the slow pace of government machinery moving project files. This has delayed numerous projects and escalating costs of many.


Maharashtra Chamber of Housing Industry (MCHI-CREDAI), formed in 1982, is the most prominent and the only recognised body of Real Estate Developers in Mumbai and the Mumbai Metropolitan Region (MMR).

“The conditions are not good,” said Gundecha. “Why is the government not expediting the approval process?” Due to lack of a single window clearance system, Mumbai realtors have to seek nod from various ministry before a project is started. “There is no clearance coming from the ministry of environment and forest nor the urban development ministry. If the ministries don’t respond on an application that project gets an in-principle nod,” he said.

“But every file is stuck somewhere with the government departments. The Brihanmumbai Municipal Corporation (BMC) is not giving permissions. We had a meeting with the commissioner during in June to discuss the matter and he will be meeting us again in July to discuss the same,” he said. However, till the filing of this report no date was fixed for the meeting. “No real estate player can give results in these conditions.”

According to realty consultancy, Jones Lang LaSalle’s (JLL) managing director for western India, Ramesh Nair, “There is a marginal correction of prices in last one year (in Andheri East area). Despite demand going down prices did not go down. This is because the number of approvals reduced drastically. The number of registrations in Mumbai dropped by 35 percent in 2011. But this did not impact prices because new real estate property launches also fell by 40 percent.”


“Due to low approval rate the return on investments (ROI) has gone done,” Gundecha said. “There are high vacancy levels (buildings finished by not leased or rented). Sale has also slowed down. Realtors are unable to pay back banks. And taking money from foreign institutional investors (FIIs) and others is very expensive. Private equity investors charge up to 20 percent, FIIs charge 20-30 percent, while banks charge up to 18 percent. Naturally the escalated cost will be passed on to the end customer,” he said.

According to JLL’s Nair, “The biggest result of a delay is the developer being hit by the interest costs which today is between 15 to 25 percent per annum. The developer then passes on this to the end user. Therefore a 1 year delay in approval increases the price by 20 percent which negatively impacts the common man. And this is applicable to all asset classes.”

This delay bodes bad news for the end buyer. “Because 1 percent increase in interest rates (for realtors) is 7 percent increase in EMIs. So interest rates needs to be lowered to give the housing market some momentum,” Nair said.

“The way out for developers is to sell non-core assets, converting land banks to plots and selling or offering discounts to buyers to sell existing unsold inventory,” he added.


“Banks lending to real estate developers is approximately Rs 110,000 crore. RBI needs to reduce risk weightage and asset provision norms for banks in relation to the real estate sector so that there is more lending in the real estate sector. RBI should also reintroduce restructuring facility for developers similar to 2008-09,” he said.

Real estate brokers are also affected. “The slow pace of real estate approvals on part of various government agencies has obviously impacted business,” said Vinod Thakkar, CEO of real estate consultancy, Square Feet. However, “We have been able to work out alternate revenue streams, and so business development has not been majorly impacted – but yes, faster clearances would help.” Thakkar is also the vice-president of National Association of Realtors (NAR), and founder-member of AREA Group aka Association of Real Estate Agents.



Even for ultra HNI investors the market is robust. “The Prime market in Mumbai is extremely resilient. Since the leveraging in this market too is relatively low, liquidity pressures during difficult times are rare, hence making such buys as long term buys. The low inventory (About 10,000 new units) to the relative size of the catchment (i.e about 3 to 4 million household also make the market structure robust,” said Anand Narayanan, national director – residential agency, Knight Frank (India).

Article from Dhiren Dukhu, ET Bureau  ’The Economic Times’