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Investors Guide: What makes Redevelopment Projects an Ideal Investment Choice Investing in redevelopment has its own set of benefits. Here are some facts that will assist you in making the proper choice

By Binitha Dalal

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Being an island city, redevelopment shall always play a key and important role in the upliftment of Mumbai's real estate landscape. Furthermore, the city's real estate market is expanding and gaining prominence in the country's real estate index, due to quick development, rising demand for residential and commercial units and infrastructure boost which has been a significant contributor to Mumbai's growth in the last couple of years. Between 60% to 80% of Mumbai's landscape is covered with existing buildings, the balance is reserved for open areas and no development zone, this propels the need of redevelopment in the city and add to this mix the fact that prices of real estate are closely related to the growth of GDP, employment, infrastructure and population. This means redevelopment initiatives are truly changing India's real estate market significantly.

Most buildings constructed in the city were done in the '60s and '70s which do not match the needs and demands of today's homeowners. Also being an island Mumbai will always have a challenge of erosion of buildings due to proximity near the sea. Older constructions do go through timely repairs but that can only postpone the redevelopment however it will not upgrade or modernize the building. Hence, well-known developers are proposing the concept of the redevelopment of old buildings and homes. From earlier times to now the FAR or FSI of the existing buildings has increased as well as the height available in that vicinity, this leads to existing buildings and members wanting to support the idea of bringing down their existing buildings and moving into newer homes with more space and efficient and modern amenities to match their lifestyle needs.

With redevelopment becoming a permanent and reliable measure, several redevelopment projects are expected to be undertaken in various locations across the nation to accommodate the growing demand over the next few years. Moreover, redeveloping the residential communities would be crucial to the objective of the "smart city." Especially in cities like Mumbai, where land is scarce across the city and particularly in the key locations to undertake new constructions based on the increasing demand of the consumers. Considering the extent of the problem, redevelopment becomes the best option for developers who wish to expand their projects in high-demand locations.

However, investing in redevelopment has its own set of benefits. The following facts will assist you in making the proper choice:

Standard of Living: Completely rebuilding the structure offers upgraded amenities that older complexes typically lack, such as larger and spacious homes that come with buried plumbing, fire fighting, a clubhouse, intercom capabilities, cable and telephone wirings, and smoke detectors, amongst others. Apart from amenities, the developer offers brand-new, earthquake-resistant construction to increase the building's lifespan. With these offerings and amenities, redevelopment guarantees a higher living standard for both new owners and current residents.

ESG: Climate change is a reality and we all need to do our bit to protect the ecosystem we live in. While ESG is a tool to work towards achieving sustainable living it also accelerates and promotes the need of social and governance upliftment in all that we do. With increasing demand and awareness about ESG, real estate developers are taking steps towards providing green and sustainable communities to homebuyers. A lesser known fact is that redevelopment covers a significant number of ESG measures and covers a large area of social and governance upliftment while bringing in sustainable goals and energy and resource efficiencies.

Provides Bigger Space: Design improvements and best practices for optimizing space usage can be added in redeveloped homes and can also bring in homes to meet the housing demand in desirable metropolitan areas. It works as a win-win for all stakeholders as existing tenants benefit because they obtain a new, larger house without having to pay more as well as get compensation by way of corpus and rent for the years that they are out of their existing homes. Apart from larger homes efficient parking practices and technology is brought in so as to support decongestion of the parking from the roads.

Increased Asset Value: A redeveloped home will ensure a better value for the existing tenants, with the property's overall value trending upwards as new buildings will provide state-of-the-art facilities. In addition to top-notch capital value, renovated homes also offer better rentals.

Corpus Fund: Corpus fund is received by each member, which will take care of the increase in the maintenance cost of the premises or could be utilised for building upliftment in the years to come. For a developer it is a low Capex high return asset class considering in redevelopment projects you start putting in the capital as soon as approvals come, reducing the time period for construction.

Low Equity Requirement: The largest investment in any real estate project is the land. However, it is relatively a smaller portion in cases of redevelopment. As a result, this also results in a higher return on equity for the investor. Even the transition time is lesser in the redevelopment projects as compared to the time taken for the land parcels.

Meets the objective of social impact funds: Furthermore, the nature of redevelopment projects is such that it makes them more environmentally friendly with a lower carbon footprint. And thus, helping create economic value for existing residents and better infrastructure.

Such redevelopment efforts will benefit not just the building's current inhabitants but also potential future buyers, who will be able to purchase desirable flats. Redevelopment continues to be a lucrative industry that draws many sizable real estate developers, but certain dangers exist as not everyone has the experience in managing existing members and the process of getting the members to vacate and shift back to their new homes.

Truth is - redevelopment is the best course of action to balance supply and demand. Investors should view redevelopment projects that replace outdated structures as profitable offerings since the equity investment and entry cost is lesser than that in the case of purchasing land and it works to provide homes in key prime parts of the city where demand and pricing is significantly high and the supply is not available, hence remains a great opportunity for investments in metro cities and urban areas.

Binitha Dalal

Founder and Managing Partner, Mt K Kapital

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