Mumbai developers face uncertainty over legal issues

August 2016
Due to confusion over new development rules, the Mumbai Metropolitan Region (MMR) will see fewer project launches and land deals in the year ahead. The expected decline in future launches comes on the back of a sluggish June quarter in which only 5,059 housing units were launched, which is less than half of the 11,041 units a year ago.

Twenty-year-old Development Plan (DP) for Greater Mumbai (the biggest chunk of MMR) was released in May. The proposed FSI increase from the current 1.33 to 2 – this additional FSI promised for offices and affordable housing are good for builders, who now want to wait before launching projects under current rules, which are more restrictive.

The February 29 Bombay high court ruling banned all new construction in the city as the state government and Brihanmumbai Municipal Corporation (BMC), or Municipal Corporation of Greater Mumbai, had failed to comply with the municipal waste management rules. Mumbai’s two waste dumping grounds at suburbs Deonar and Mulund are working well past their capacity.

Ramesh Nair, COO, JLL India has reportedly said that slow market, new development plan confusion and the recent court ruling have led to launches getting impacted in a big way. Developers are factoring in an extra year of approval while buying land. This is impacting the overall project internal rate of return and profitability. 

As per the new rules, builders must provide full disclosure of their projects – including all regulatory approvals, time for completion and project master plan – before launch. The builder must open a bank account exclusively for the project and deposit 70 per cent of the home sale proceeds into it.

Wadhwa Group is known to have deferred the launch of the second phase of its housing project Atmosphere in Mulund in November till the next fiscal, as it seeks more clarity on the new DP, besides ensuring that the project is compliant with the new real estate regulations. Navin Makhija, Managing Director of Wadhwa Group, has shared with the media that projects and land deals are stuck because of the confusion over FSI. 

Limited new supply has helped reduce unsold inventories in the last six months, prolonged delays in sanctioning new projects within the city may result in either developers’ funds getting stuck or create a situation of shortage in new housing supply.