Friday, April 06, 2012: 11:54:08 AM

TJCD Case Study

The anatomy of urban investments in Mumbai

Rs 276 billion has been invested in land in Mumbai since 2005 and this does not even include the confidential transactions and investments made into Slum Rehabilitation projects and other redevelopment projects

India’s growth story has many facets; one of the integral parts of growth - and arguably the most important one - is urbanisation. In fast-growing economies, cities are significant investment and employment generators, which in turn carry the growth momentum forward. The sustainability and liveability of any city depends largely on the quality of its infrastructure and real estate stocks. Needless to say, cities also require large sums of money to create urban asset stocks, including buildings and infrastructure.

 
Over the last decade, India’s population grew by 18% while its urban population grew at almost double that rate (at 32%). Currently, about 31.2% of India’s population lives in urban areas. The country’s share of urban population has increased by almost 3.5% over the last decade. What is even more astounding is the increase in the built-up real estate stock in its cities and towns.
 
Data from the 2001 census shows that about 110 million ‘Census Houses’ exist in the urban areas, which indicates an increase of 39 million over the last 10 years. In other words, real estate stock shows a compounding growth of 4.5% per annum as against the growth rate of 2.8% in urban population. Obviously, such massive growth needs adequate support from infrastructure.
 
However, the state of affairs with infrastructure in Indian cities is not very encouraging. Most of the cities still have to deal with issues in terms of roads, public transportation, sanitation, storm water drainage, solid waste management systems and the like on a regular basis. With the volume of real estate stock increasing inexorably in the cities, there is an acute problem with the basic needs like energy and water in the store for urban India.
 
The private sector contributes most of the development of real estate stock; however, the responsibility of infrastructure development lies squarely with public sector entities such as ULBs and other utility companies - most of which are government agencies. The investment pattern in our cities shows a similar trend – the private sector invests in the development of real estate stocks, while the public sector invests largely into infrastructure development.
 
The quantum of investments in most infrastructure projects is huge, and the agencies responsible for its development are seriously under-financed. They depend either on domestic grants like JNNURM or on intercalation financing involving bilateral and multilateral agencies. In some instances, funds are mobilised from private sources in the form of public private partnership. The private sector generally tends to shy away from investments into city-level infrastructure projects, as most of these projects are considered non-remunerative. They prefer to focus on investing into the development of real estate stock.
 
Mumbai – A case study
 
Mumbai, India’s financial capital, attracts massive investments - largely in the real estate sector. The city being the nation’s epitome of high real estate prices and land scarcity, huge sum of money keep chasing land in the city - while infrastructure augmentation lags behind. Way behind.
 
The opening up of FDI in real estate in 2005 opened the floodgate for investors vying for a share in the juicy pie that Mumbai real estate represents: 
 
 
Prime Land Deals in Mumbai City Since 2005
 

Zones
Land area (in acres)
Total investment (in INR crores)
South Zone
105
13,406
Central Zone
42
6,356
West Zone
98
4,016
East Zone
451
3,831
Grand Total
697
27,608

 
Since 2005, there have been many record-breaking land transactions in Greater Mumbai - mostly from NTC mill lands and by MMRDA at Bandra Kurla Complex. Some of the aggressive land purchasers were IndiaBulls, Lodha Developers, Piramal Sunteck, Wadhwa and Peninsula Land Limited, among others.
 
A whopping Rs 276 billion has been invested in land in Mumbai since 2005 – and this does not even include the confidential transactions and investments made into Slum Rehabilitation projects (SRA) and other redevelopment projects. The sum of the unaccounted transactions could possibly be another Rs 100 billion in the same time period.
 
Patterns of Investment in Land Over Time
 
 
In terms of investment sizes and the total quantum of investment, South Mumbai leads the pack, followed by the Western zone - primarily because of land auctions at BKC. The East zone attracted the least investments - most of them into defunct industries along LBS Marg. Interestingly, CIDCO at Navi Mumbai has also been able to mobilise massive funds through the auction of plots at different nodes. The level of infrastructure, social amenities and economic activities has pushed up the real estate prices of Navi Mumbai – and they are still rising.
 
From a city-level perspective, it is important to understand whether the large volumes of investments in land have actually delivered a proportionate development of real estate stocks in the city:
 
Prime Residential Unit Launches
 

Year
2007
2008
2009
2010
2011
New Launches
(No. of Prime Residential Units)
21,870
24,747
66,796
80,592
61,907
Cumulative Growth
21,870
46,617
113,413
194,005
255,912

 
The data indicates that about 2.5 lakh dwelling units have been launched in Mumbai over the last 5 years. Some of this stock has been constructed and delivered, while part of it is still under construction or at the approvals stage. If, for the sake of an argument, we consider the entire stock of dwelling units and the average investment for the land component per dwelling unit, it works out to over a million rupees.
 
In other words, the direct beneficiaries of these real estate investments are, at best, about 2.5 lakh households (considering one family occupying one dwelling unit) or less than 10% of the city’s population.
 
On the other hand, if we look at the investments made in the city’s infrastructure (which aims to cater to 100% of the population), the situation is very different:
 

Prime Infra Projects in Mumbai since 2005
Total investment (crores)
Monorail
                                                       2,716
36 Skywalks
                                                          735
MUTP Phase II
                                                       5,300
MUIP
                                                       2,648
Extended MUIP
                                                       1,550
Mumbai Metro - Versova-Andheri-Ghatkopar Corridor
                                                       2,356
Total
                                                    15,305

 
The data indicates that the quantum of investments in mega infrastructure projects amounts to only 60% of the investments made in prime land in the city, approximately in the same period. If we look at the present status of these infra projects, most of them are stuck in various bottlenecks and running abysmally behind schedule. One of the main reasons for this is inadequate funds arriving far too sporadically.
 
On a hypothetical note - had the authorities had the kind of money that the private sector invested in prime land, the city of Mumbai would have been transformed much faster.
 
Going forward, the fund requirement for infrastructure projects will increase further. Many mega projects which are extremely critical in terms of enhancing mobility, clearing up traffic congestion and thereby improving the overall quality of life in the city have been planned:
 
 

To be added
Total investment (crores)
MTHL
                                                    8,800
Worli Haji Ali Sea Link
                                                    1,120
Mumbai Metro - Charkop-Bandra-Mankhurd
8,250
Mumbai Metro - Colaba-Bandra Corridor
9,400
Total
                                                 27,570

 
 
The city of Mumbai needs additional investments of about Rs 275 billion in the infrastructure sector over the next 5 years if these projects are to be completed on schedule. This is equal to the amount that the city has buried in its land. The paradox of the situation is that despite sitting on such massive money resources, Mumbai is unable to generate to fund its most essential requirements.
 
Much of the investments in land, particularly in South Mumbai, have actually remained non-yielding. The complexities of the Development Control rules, the approval process and policy flip-flops have virtually kept the supply side down for several months. Investors have not been able to fully monetise their investments, and the end users have faced spiralling price rises despite economic slowdowns.
 
This would be an apt time for the authorities and policy makers to focus on breaking this deadlock. The need of the hour is to view real estate and infrastructure development in Mumbai cohesively, not as isolated phenomena. There are enough ingredients for solutions available within the system.
 
 
The case study has been done by Jones Lang LaSalle (India), a well-known property advisory firm
 

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