Due to the COVID-19 Pandemic, Real Estate sales have not raced ahead like every other year. The real estate stocks have enjoyed the sweet gains in previous years as they have factored in a lot of positives such as affordable housing, RERA, and many other implementations. Redevelopment of housing societies was a money-spinning deal for most of the builders but has lost its charm and had faced a 50% decline from the year 2019. Besides an immobile property market, developers say that such redevelopment projects which earlier earned them huge profits and are no longer profitable because of various reasons like high premiums approval delays, stringent norms and development charges levied by BMC (Brihanmumbai Municipal Corporation). 

There were approximately 19,000 cess buildings in Mumbai which are yet to redevelop. However, it has been proven that real estate builders walked away to undertake these projects. The total revenue of BMC from the redevelopment projects was around Rs 5,000 crore a year. However, in 2019, this plummeted to Rs 3,200 crore. 

Few reasons that lead to the overall decline of the redevelopment projects:

Flattening real estate market:

The prices of properties in Mumbai have been doubled from 2006 to 2010. The prices are now either stagnant or declining marginally year to year. It is an obvious fact that the residential real estate market in Mumbai has been filled with numerous unfinished projects and this has impacted investor sentiment in the last two years. 

Approval Delays:

Redevelopment projects are very complicated because several stakeholders are involved in it and since there are many roles involved, the process of obtaining such approvals is very challenging. Approval delays are always commercially unviable for real estate builders and this has affected the development of redevelopment projects. Approval delays are the actual reason for project delays and no action has been taken to expedite this issue. Developers face a lot of challenges in the process of redevelopment from environment clearances to the availability of NOC’s and such delays result in deferred project handovers. 

Latest strict guidelines:

MHADA has introduced new norms for the redevelopment projects in December 2019 as which the landlords can only appoint builders registered with MHADA. The authority has specified the eligibility criteria for builders based on their turnover and past work experience. The guidelines also require the builder to maintain an escrow account with the housing society to be redeveloped. This decision has faced strong opposition from the developer community as the guidelines render many developers ineligible and eliminate from the process. Also, developers had felt that this decision of selecting a builder should rest with the landlord, owner, and society and not with the MHADA. 

Reduced Profits:

redevelopment projects can be time-consuming and making money could be difficult, especially when the plot sizes are small. The state government has reduced the FSI( Floor Space Index) from 40% to 50% and for RRR (Ready Reckoner Rate) has been reduced from 50% to 35%, due to this all the developers have just reported their losses and this was one of the main cause that the redevelopment projects have lost their charm in Mumbai. 

The difficulty in sales, cost of acquiring capitals, pricing pressures, constant demands by former flat owners, landowners,  society, and the peculiarities affiliated in dealing with such multiple stakeholders, has turned redevelopment a non-attractive option for most of the developers.