Like Mumbai, where players like HDIL, Akruti City and Omaxe have made a killing in the slum rehabilitation projects, Delhi slums also offer big business to real estate developers. Delhi Development Authority (DDA) is firming up on an elaborate plan for slum redevelopment projects in the capital and for the first time is involving private developers. It has appointed consultants to draw up plans on the redevelopment of 30 slums in Delhi. Players like DLF, Omaxe and Raheja have shown interest in the DDA plan to redevelop 30 slums.
Why are these big developers vying for the slum rehabilitation projects?
The simple reason is that margins offered by slum projects near 70% as against 30 - 35% for other real estate projects. The developer is expected to build houses for the slum dwellers and in return gets a part of the total space for development which he can sell at market rates. The developer get higher floor area ratio (FAR), i.e, permission to build more floor area on a piece of land. The FAR on a normal project is different for every city ranging from 1.8 in Kolkata to 2 in Delhi and unlimited in Hyderabad. However, in slum development projects FAR is increased further thus allowing higher margins in these projects. The Internal Rate of Return (IRR) for slum projects are much higher than commercial and retail projects. Access to cheap and strategically located land is the biggest advantage in these projects.
Scope for slum development in Delhi
Delhi has around 900 slum clusters housing a fifth of the total population. This is the first time that DDA is involving private developers in slum projects and DLF, Omaxe and Rahejas have shown considerable interest and are waiting for the government's nod. The slum redevelopment projects will be done on similar lines as being undertaken in Mumbai's Dharavi(Done by HDIL) or other slum areas. As against Mumbai where the slum clusters are spread out in size, Delhi slums are small and hence relatively less attractive.
Nevertheless, the slowdown in the real estate markets makes these slum projects in Delhi also very attractive with higher margins and is likely to attract private developers interest.
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3 comments:
What about the marketibility of such projects? Don't the projects become less attractive for a normal buyer who knows that their 'neighbours' in this housing project are not very economically capable and slum dwellers? Or do the developors plan the projects in such a manner that there is a distinction between two kinds of housing? how does this work in other cities where this model already exists?
The adjoining property that is constructed is targeted at the lower middle income class who do not have the resources to buy a home in the rest of Mumbai.
The developers do not really need to market these projects as the rates in these projects are subsidized compared to the rest of the market with the economics being in favour of the developer. They get the land free of cost, which forms over 50% of a project cost, and needs to build a basic 225 sq feet flat with one room, kitchen, an independent toilet and bathroom.
An issue with these slum projects is that the slum dweller puts the new flat on rent and moves on to another slum where as he can live in that condition and in turn earn a permanent income in the form of rent. Hence slum projects do not really solve the purpose but the developers end up making a good 60-70% IRR on these projects
Fair enough...but with regard to the problem that you highlighted, have there been any suggestions made or discussions to overcome this problem? Why would the government still subsidize the land cost if they know that this model doesn't really solve the slums issue...
I am more keen on the first question...second one is just a comment :-)
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