Mumbai slum clearing projects might bolster real estate firms

Urban redevelopment plans for Mumbai, India's largest city, call for moving millions of slum dwellers off some of the country's potentially most valuable land.

Analysts say that relocation projects, in line with plans by the government of Maharashtra state, should benefit two listed companies with a focus on such work: Housing Development & Infrastructure and Akruti City.

An estimated 13 million people live in Mumbai itself -- the wider metropolitan area has a larger number -- and more than half of them are in slums. They say slums occupy about 8% of the land in a city that is almost surrounded by the sea and lacks room for outward expansion.

As India's economy booms and Mumbai becomes a major Asian financial center, property there is increasingly scarce and costly. Property values in south Mumbai, for example, have risen 10% to 40% during the past 12 months, and could rise 5% this year, according to Macquarie Securities.

The "only way to generate land and create space for new commercial expansion of the city, is to clear these slums," says S. Sriniwasan, chief executive of Mumbai-based Kotak Real Estate Fund. That makes the slum-clearance business a potentially hot sector, he says.

Under a program the state government introduced in 1992, development and construction companies can seek permission to clear and rehabilitate slums built, often by people going to Mumbai to seek employment, on private and government land. But projects need the agreement of a majority of the existing residents before they proceed. That can involve complex and lengthy consultations.

In return for the developers providing new homes for the slum dwellers, the government lets companies keep a portion of the cleared land, or gives them rights to develop elsewhere in Mumbai. They also get rights to construct high-rise buildings.

That has made slum clearance a lucrative business, analysts say. For instance, a residential complex recently completed by Akruti City cost 2,500 rupees ($64) a square foot to build, including the resettlement of slum dwellers. The company is now selling the properties for 11,200 rupees a square foot.

So far, 20% to 25% of Mumbai's slum residents have been resettled, according to M.G. Shekar, secretary of the Mumbai-based National Slum Dwellers Federation. The state government is processing applications to clear more slum areas more quickly, which should lead to accelerated activity, according to Suman Memani, a construction and real-estate analyst at Religare Securities in Mumbai.

To be sure, there are risks in slum clearing: Projects have long gestation periods and there are competing political interests. For example, the redevelopment of Dharavi, one of Asia's biggest slums, will see some 65,000 households in an area covering 205 hectares moved to free up land in the heart of Mumbai. But it is also one of the city's most difficult and controversial relocations, partly because of squabbles over the size of replacement housing being offered.

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