Property prices in the Bandra, Khar, Santacruz micro-market could fall, as redevelopment picks up pace. Most projects will find it tough to command prices that are prevailing today.
Anyone who has been tracking the cruise drugs case involving Aryan Khan would have seen parts of Bandra. Television cameras have been hovering outside the residence of Shah Rukh Khan which is in that locality. Keeping him close company are Salman Khan and cricketer Sachin Tendulkar, who also have their primary residence in that area. Actress Kangana Ranaut stays in a locality adjacent to Bandra: Khar. Adjacent to Khar is the suburb of Santacruz. In a way, the three localities of Bandra, Khar and Santacruz have become largely indistinguishable from each other. It is tough to say where one starts and where it ends for an outsider.
Until the late 1990s, prices in this market were 50% lower than the prices in South Bombay. That was the phase when everything of relevance existed in South Bombay. From Big Finance to the Diamond Centre – it was all here. Almost everyone with a serious professional career had to be in this location. Eventually it got so crowded that the government realized a new central business district was necessary. Given the quality of bureaucrats and political leadership, I don’t think even the administration believed it would turn out the way it eventually did. Fortunately, the government had by its side Mumbai’s best bureaucrat in several decades – T. Chandrashekhar – to get the job done. It wasn’t easy, but the man pulled off a mini-miracle. That mini-miracle would be the new central business district at Bandra Kurla Complex, very close to the suburbs of Bandra, Khar and Santacruz. Chandrashekhar would later resign in frustration, but by then, he had transformed the economic geography of India’s commercial capital.
Given the proximity to this new central business district – home prices in the suburbs of Bandra, Khar and Santacruz rose. The vibe and profile of the market kept it rising. Today property prices are amongst the highest in Mumbai. It helped that while prices in many markets normalized with increased supply of apartments – in these suburbs there was minimal addition. That’s because other markets had open land or mill land for development. In this area – it was all redevelopment-led.
What is redevelopment? Simply put, it is demolishing an old, small building and replacing it with a new, larger building subject to municipal norms. Old home-owners get bigger apartments in the new building – at no expense. Government bodies get money through levies and taxes from the builder. And builders get a certain amount of space in the new building to prospective home buyers – this is the part wherein developers recoup their cost and make a profit.
Unfortunately, in recent years a triple whammy of steep government levies, greedy home owners and uninspiring developers – ensured that redevelopment came to a grinding halt. Project viability was thin as costs were high and developer credibility was low. It didn’t help that large developers ignored this market on account of its small plot sizes. Property Science, a real estate intelligence platform, shows that the average plot size in these suburbs was a meagre 1,034 square metres or approximately 1/4th of an acre.
Enter COVID-19. After the carnage everyone seems to have adapted to a new reality. Home owners have become reasonable in their demands. Dubious builders have been ignored while credible developers have gained greater acceptance. And the government has provided benefits until December 31, 2021. That’s triggered a stunning wave of redevelopment activity.
Ram Raheja of S. Raheja Realty, a developer focused on redevelopment in the micro-market, says that we may see “more supply hitting the market in the next year than we have seen in the preceding 10 years”. Will it have an impact on prices? Ram isn’t very worried, though he points out that pricing will now vary widely depending on individual project dynamics.
But there are others who are sensing a battle going forward. Sharan Babani of Satguru Builders believes prices are likely to go down 10-15% for a majority of the projects. He says, “Barring the top developers who have projects in good locations, a price correction is likely everywhere else. It’s a bitter truth but there is a strong price war coming.”
My own view is that prices in this micro-market certainly will fall going forward. There will be minor exceptions, but most projects will find it tough to command prices that are prevailing today. It had remained elevated primarily due to a paucity of new supply amidst an inherent desire to be located in only this micro-market. Thus, even shoddy low-quality buildings found reasonable adoption. That will not sustain as this sharp supply of apartment inventory enters the market. For a majority of projects there will be a buffer to be aggressive on prices given the government FSI (floor-space index) premium cut. That will ensure prices will be lowered – either publicly or discreetly. I anticipate after the initial reluctance several projects will start trimming the size of apartments to fit a certain ticket-size for the home buyer. It will be a wise approach. With this flood of supply hitting the market, volumes will matter.
The vibrant suburb has an opportunity to create a vibrant real-estate market. It’s been overdue.
