Mill land has suddenly become the most important subject for real estate development in Mumbai. The magnitude of land is very vast. Mumbai, commercial capital of India, is having scare land and vast potentially to develop it. Private participation in developing Mumbai cannot be compared.
These days talk to anybody in Mumbai about their plans to shift office and you find they are all headed in the same direction: the old mill in Parel. Banks, newspapers (including this one), advertising agencies, leisure halls, dot com companies, you name it they’ve either moved or are headed northwards to the center of the city. In many ways the move seems to make perfect sense. The southern part of the city gets decongested, less money needs be spent on rents, businesses get more space for their operations, etc. And yet in all this dizzying rush it is easy to forget the long and controversial series of events that led to this point. As it is to ignore the economic and other implications of the phenomenon. The glitzy, Colourful facades popping up one-a-minute will soon obscure the smokestacks and the slopping roofs. How then will we remember the past or anticipate problems likely to crop up in the future?
About Mumbai’s real estate market
Mumbai, the commercial capital of India is having 437.71 sq.kms of land. Total land available or occupied is 68.71 sq.kms in suburbs and 158.66 sq.mts for extended suburbs. With density of population just above 45000 per sq.kms the mega city has vast area of land to reduce the density. At present more than 12 crore sq.ft of projects going in full in Mumbai and its suburbs. About two-thirds of its population is concentrated on Mumbai island, which has an area of 26 square miles, making Mumbai one of the most densely populated places in the world reaching upto 6,00,000 persons per square mile in some areas.
Being the largest metropolis in India and the sixth largest metropolis in the world, Mumbai is a major business centre and is the commercial capital of India. Mumbai is the largest port in India, handling the largest tonnage of foreign in the country, and it is also a business hub for national and international businesses with its frenetic energy, large size and diversity of industries and people. Many companies locate their headquarters in this skyscraper-filled city, which accounts for 70% of business transactions in India.
A reasonable transportation system makes Mumbai accessible and conveniently connect the city with other major cities in India. Commuting within the city is made by efficient suburban train service, which connects south Mumbai with the northern suburbs.
General Economic Outlook
The city has always been the principal commercial city of India, and remains the hub of the elite Indian business community, the popular choice for investors, and the prime locations for multinationals. Globalization has brought increased business opportunities to Mumbai from foreign companies, which want to reap the benefits of India’s large labour force, as well as to access one of the largest ports in Asia and a bustling business community abundant with global corporations. As large multinational conglomerates continue to move into Mumbai, financial service firms are following, particularly US-based firms, including Myrill Lynch, Goldman Sachs, Orix and J P Morgan. This trend has supported Mumbai’s emergence regional financial centre on the global map. Since 1995, rents in Mumbai have been dropping steadily, making it less and less expensive to set up offices in the city. Recently, signs of economic recovery have drawn a renewal of market interest in real estate investment. There is a large labour pool in Mumbai, unrivalled in other Indian cities, and the basic necessities of power, water and transport are all among the most efficient in India.
The Office Sector
The rental market in the CDB of Nariman point was sluggish because of the stock market crisis and current IT down turn, however has been significant activity in the suburban office due to the lower rentals and availability of large contiguous floor plates. The more active suburban markets, Andheri Kurla and Bandra Kurla, both witnessed a substantial leasing of space by media, IT, and dotcom firms as well as traditional businesses. Overall, more and more back-end operations and corporations, internet start-ups, IT companies and call centres have relocated to the suburbs. Despite limited sales transacted, the rising activity of land acquisitions for office development does indicate developers optimism regarding the future outlook. Capital values of prime offices ranged from Rs 5,000 persq.ft to Rs 16,000 per sq.ft and effective yields were between 10-12% pa. Whilst no new projects are planned in the CDB, substantial construction activity is underway in the suburbs.
The Industrial Sector
Maharashtra, the state in which in Mumbai lies, remains India’s premier locations for industrial developments. It is India’s primary location for consumer goods companies. constructions of industrial developments in the state is taking place in the greater Mumbai area. Rentals for a typical 30,000 sq.ft industrial unit range from US$ 6 to 8.04 per sq.ft pa.
The region lies to the north of Mumbai as a part of the main land and stretches from the Arabian sea to Mumbai harbour. MIDC is particularly active in this area, providing basic infrastructure for the development of various industries and allot of land for individual industrial sites. MIDC develops buildings and also sells land in locations identified for future growth. It also offers tax incentives to incoming companies. This area is exclusively tailored to non-polluting industries and increasingly attracts computer and software development companies.
Other Suburban Locations
Other major developments, which saw significant activity in 2001, include mind space development Malad. Most of the call centres, such as efunds, Citibank, Daksh, Hutch, etc. have opened base in this new 80-acre mixed use development.
Worli and Lower Parel area
This region is located north of the mill districts. Historically, this area was industrial heart of Mumbai and was characterised by a heavy concentration of cotton and textile mills. However, the significance of these mills are either classified as sick or closed, and some of them are being redeveloped for commercial use. The recycling of mill land is highly regulated by the government with specific consents required to both closing down an existing operations and redevelopment. There are number of multinational corporations with industrial facilities in this are such as Glaxo,. Siemens and Cadbury. However, many of these companies are relocating their production facilities to cheaper locations and most of their former industrial accommodations are being converted for commercial use. The supply of such industrial accommodations in this area remains high. Significant conversions of mill land has taken place in Worli and Lower Parel.
The Retailer Sector
Constructions of retail developments was active in Mumbai, with a number of retail projects being completed in year 2000. For instance, E-Citi, promoted by Zee Telefilms, is setting up entertainment complexes in Andheri and Chembur; the Nirmal group is constructing a 3,50,000 sq.ft family entertainment centre in Mulund. Major retailers who have pre-leased space in the mall include Arcus the home store, McDonalds, Pizza Hut and shoprite from South Africa. Phoenix mills, located in the mill land at Lower Parel is developing a mall of 4,00,000 sq.ft which is operational since early 2002. Prominent retailers who have taken up space in this mall include McDonalds, Big Bazar (a discount store owned by pantaloon retail India Ltd), Barista and Dominos.
Maharashtra also has seen a landmark change in the theatre and multiplex regulations. This has resulted in a spurt of activity in the theatre industry. An expected 160 new screens are proposed by year 2004 and the major players include INOX, Cinemax group, Srinagar group and Bigli group (PVR brand). International retailers present in the city include Lee, Reebok, Nike and Benetton. Much of the retail activity is concentrated in smaller and congested market areas specializing in the household and domestic commodities. Both local and international corporate retailers continue to expand in the city.
Since the property market peaked in 1995, property values have fallen significantly and rentals have also suffered similarly during the recession. With signs of economic recovery growing stronger, both capital prices and rentals are firming. The leasing market of grade-A offices is expected to expand, with both take-up and rentals recording further gains. Majors takers will primarily come from the IT-enabled sector and media firms as demand from internet start-ups, while traditional IT firms and dotcom companies will continue to shrink. Overall, sentiment is expected to gradually improve, following the steady recovery of the local economy. On the price front, the prices of quality developments may remain stable. With respect to retail, there is going to be boom in the retail activity. The phoenix mall has just become operational with the big bazaar, a 55,000 sq.ft discount store this year has proved to be hit. Many similar projects are in the pipeline, the prime spaces to continue to command premiums, though the retailers would have variety of projects to choose from.
The property markets in Mumbai reached stage of maturity over the turn of the century. The initial boom of the mid-nineties followed by the crash in the latter half of the decade has smoothened out to reach the level of stability. This has led to several changes in the residential sector. Increased transparency amongst the developers, a more educated buyer and easy availability of home loans have moved the residential property market from an investor driven to a user driven market. The effects of this stabilization have been observed on both prices as well as volumes. While residential property prices seem to have kept pace with the rate of inflation, there has been a marked increase in the volumes of transactions that are taking place.
History of Mill Land
To understand its impact on the regional economy and geographical importance, let us first look into the history of these mills. In 1700 century, cotton trade with China from Bombay had begun. In 1853, the first rail link was extended through the Bhor ghats to Deccan. It was then possible to channelise raw cotton from the major growing areas (Nagpur) to the foreign markets through Mumbai. Hence up a large number of godown and warehouse between the railway line and the docks at the cotton green dockyard, Sewri. In 1854 when first smoke from the cotton textile mill went up in the air, a new era began for the textile history in the country.
The first mill that appeared on the Mumbai’s land was Bombay spinning and weaving company’s cotton mill at Tardeo in central Bombay. The success of the first mill had encouraged Bombay’s businessman to shift their operations from trading into manufacturing. The oriental spinning and weaving company followed in 1860. The cotton boom of 1860’s invited further enterprise in the industry and by 1865, ten mills employed over 6500 workers.
The municipality undertook the task of filling in the town sweepings the lands between Mahalaxmi & Clerk road that had originally been covered by swampy flats. A new thoroughfare was laid across the area where drainage seem difficult; the land was raised to the height of the new roads. The project made possible the construction of more mills and worker chawls on the land lying between Tardeo and Lower Parel. This lead to a steep rise in land prices within the area.
The employed hundreds of thousands by 1900. The most evident change in composition of the population was a wave of property stricken Maharashtrian peasants from the drought ridden districts of Satara, Kolaba and Ratnagiri, who came to Bombay for jobs in the textile mills and docks. The mills were located on the outskirts of the fort area. In the stretch of Parel and Byculla land was then available in plenty and the 55-60 mills spread over 12-20 acres each in culmination amounting to nearly 400-500 acres of land.
Initially, labour was cheap and mill owner never gave them any other benefits. After trade unions were formed, the mill owners were forced to give them a number of benefits in addition to high wages. Their shares in profit became less. They were also forced to pay higher property taxes. The mills were not then a profitable venture for them and they started declaring it stick.
Regulation 58 of the new DCR which came into force in March 1991, provides for development of sick and/ or closed cotton textile mills on condition that one third of the land is given to the BMC for public amenities and 27-37% (depending on the area of the mill) is given to the MHADA and PSU’s for housing. The remaining lands could be developed by the owner for residential and commercial uses as may be permissible under the DC regulation in force.
The DC regulation of March 1991 intended to regulate the development of cotton textile mills so as to generate open spaces and public houses for the city, in a manner, which would create coherent urban form. Such redevelopment that has occurred has been in a piece meal haphazard manner on a total commercial basis, without any portion of the land becoming available either for low income housing or for public amenities. On 29th February 1996, Maharashtra government had instituted a study group under a chairmanship of Architect Charles Correa to have an integrated development plan for the development of textile mills. In June 2002 state government cleared the proposals to sale of surplus mill land of NTC as per DCR.
Now the land is absolutely in the real estate market. There are 58 cotton mills in this area, out of these, 25 are managed by National Textile Corporation (NTC) and by Maharashtra State Textile.
Box 1: List of major mills and their present status
Spring mill: 1.6 million sq.ft in Naigaon, Dadar. Bombay dyeing is planning to set up its corporate headquarters in the property.
Century spinning and weaving mill: About 2,00,000 sq.ft. cleared for development.
Dawn mills: About 3,00,000 sq.ft of land, which belongs to Ruia group.
Gokuldas Morarjee Mill no 1: About 2,00,000 sq.ft situated in Lower Parel. Commercial development bank is on.
Gokuldas Morarjee Mill no 2: About 2,50,000 sq.ft. situated in Lower Parel. Commercial development is on.
Situated in Prabhadevi, the property (about 110000 sq.ft) belong to the Thackersay group which has entered into a joint venture with the CL Raheja group.
Khatau Mankanjee spinning and weaving mill: About 11 acres of land.
Mafatlal No 2: About 15 acres of land has been cleared by the government. Mafatlal group is free to sell it in the open market or even develop it for residential and commercial purposes.
Matulya Mill: About 12 acres of land. Clearance for redevelopment has been given. A portion of land has been shared between the BMC and MHADA.
New Great Eastern spinning and weaving mill: clearance has been given to residential development ad a proposal for modernisation of the mill has also been approved.
Phoenix Mill: Commercial land has been already begun.
Primary spinning and weaving mill: About 400000 sq.ft of land, which is been developed by Marathon group. It is a mix of residential towers and corporate offices.
Simplex mill: 70000 sq.ft. has a joint venture with Godrej properties and is planning a residential and commercial combination of construction.
Corporation (MSTC), remaining 32 mills continue to be in the private sector. Textile mills hold 400 to 500 acres of land just in the heart of greater Mumbai. NTC alone having 275 acres in its possession.
The centralized site of these mill will impact major sale of western suburbs. Proximity to south Mumbai and well connected to both the suburban lines, these mills have approximately 200 acres to be constructed and sold. Huge land will be now available for private developers for big housing complexes. Many of such projects already started or on the verge of it. (see box 1)
Issues related to development of mill land
A peninsula cobbled together from seven islands, Mumbai, formerly, known as Bombay, is one of the most congested and expensive cities in Asia. Yet sitting in its very heart are large areas of idle land belonging to defunct cotton mills, a relic of the city’s once-glorious textile industry. now these lands will finally get new lease on life. In March, a new state government policy went into effect that frees up textile mill land for redevelopment. Over the next five years, the process potentially will lower property prices in the city and transform a large part of Mumbai’s core.
A very large large chunk of land: A soon to be published report by New York based property firm Cushman & Wakefield’s Mumbai office estimates that the mills occupy about 231 hectares of land. Under the new policy, no more than third of it could be available for commercial development-but this figure, notably, is still nearly double the entire size of the Nariman Point, Mumbai’s current central business district.
Proposed use of the freed land: Now, in an effort to appease all parties, the new regulations divide a mill into three equal sectors: one-third of the city for public space; another third for low-cost residential housing, including homes for former employers; and the last third for mill owners to develop independently. Because of the potential space available, they see a chance for new types of development—large retail stores, for example—that would be impossible elsewhere on the jam-packed peninsula, says Aashish Velkar, deputy managing director of Cushman & Wakefield in Mumbai.
Ease of flow of property in to the market: A flood of property will not come into the market right away largely because many mill companies are heavily indebted to the banks and some cases the properties themselves are already mortgage. All these debts have to be settled in some form before a sale. Hence, financiers see obvious problems going forward, but yet many real estate experts are largely enthusiastic. “There’s a lot of interest”, says Niranjan Hiranandani, managing director of Hiranandani Constructions, are large Mumbai based developer.
Feasibility of development: Experts also worry that the areas outdated infrastructure-roads, water and sewerage—won’t keep pace with the new development.
“ Here is an opportunity to create an environment, not just a building”, says Velkar. “ If the development is not planned, there is a real danger it will be haphazard. “And that would mean wasting the last pocket of centralised available land in the city.
Taking into considerations let us now see, the present trends of development in the areas and also likely trends and their implications in the near future.
Recent trends and their implications on Mumbai’s real estate market
Impact on the demand supply
A big chunk of Mumbai’s textile mill lands, estimated around five million sq.ft, has been cleared for development. this large supply of commercial and residential property stock, mostly concentrated in the centre of the island city, is likely to put strong downward pressure on upscale property prices throughout the city.
The release of such large supply at preferred locations would create a surplus which many developers might dread as it may impact their outgoing developments. Residential developments are not likely to have much of an impact; it will only stabilize the prices at a slightly lower level. It is the commercial office market that is likely to see more aggressive competition from developments in the not so commercial areas like Parel and Bandra-Kurla. The release of mill land can be viewed as both a threat and an opportunity.
The report predicts a 10 to 20 percent fall in real estate over next two to three years, depending on the quantity of land that would be made available for development and the strategy adopted for development. Property consultants feel that after residential construction on the 50 lakh square feet of textile mill land in Lower Parel, Parel, Dadar and Worli is completed, property prices in these areas and Mulund could be comparable. These areas are also slated for commercial development and is likely to decongest and central Mumbai.
“Builders in suburbs will have to slash prices if they want retain customers. For the first time, buyers will actually have an option to buy a flat in Central Mumbai for the same price”, said SG Maheshwari, president sof estate agents association. “If the property rate in Worli is between Rs 3,000 and Rs 3,500, why would one buy a flat in the same price bracket in Oshiwara?” said an Andheri based property consultant.
Effect on the property rates
The most noticeable fallout out has been increase in the property rates of the locality. The government’s assessment of property rates in Mumbai point to Sharp 55% rise in lands rates and a 30% growth in residential units in the old mill area of Parel and Prabhadevi. The rates of mall properties have also gone up, by about 20%.
The newly released stamp duty ready reckorner, the basis for computing stamp duty on the property transactions in Maharashtra, however, recognises the shifting trends in the old mill belt of Parel-Prabhadevi. While the new developments areas such as Mulund, Lower Parel, Kandivali and Ghatkopar have witnessed higher rates, the government says property prices have fallen in some micro-markets such as Mazgaon, in the South Mumbai, Bhandup and Dahisar. Hence, this should not lead us to believe that there is an across the board rise in the property rates in Mumbai.
This area has seen hectic construction activity of late, with industrial units and mill stacks being pulled down to make way for malls, upscale commercial complexes and swanky residential apartments. Recognizing these changes, the department has revised the Parel Prabhadevi land prices from Rs 13,550 per sq.mtr to Rs 21,100 per sq.mtr, a rise of nearly 56%. Residential prices are up 30%, from an average Rs 3,700 per sq.ft last year to Rs 4,800 per sq.ft at present, while the prices for office premises have been revised from Rs 4,650 per sq.ft to Rs 5,300 per sq.ft, a rise of 14%.
Property developers are keeping a close watch at the skyline of central Mumbai’s mill land, as the longstanding stalemate on its sale is expected to come to an end shortly, with the Maharashtra government introducing a new textile mill policy.
Type of development
Developers are keen to convert the thirty million sq.ft of prime space into trendy studios and shopping malls. With just a fraction of this under development now, some property developers are also looking at converting this vast hinterland into huge warehouses to meet the needs of the growing retailing market in India.
Mill developers themselves are only too keen to cash in on the property bonanza and reap windfall profits. A few are themselves looking at possibilities of developing the land. The bone of contention till date lies with the government. However, of late, the government has reportedly shown interest in resolving the mill land issue. The plan is to address the basic problems textile mills face and take into account the deadlocks on closed units. Once this falls in place and because exemption has been granted to cineplexes from paying the exorbitant entertainment tax, a number of entertainment centres will come up in the mill land.
Meanwhile, many of the old buildings in the mill area have been refurbished at a fraction of the cost of constructing new office premises. Chesterton Meghraj international property consultants identified that this can be as little as “one third of half”. This concept has been very popular with dotcom companies, advertising agencies and media outfits, which are not keen to set up offices in the new buildings, stated officials at Chesterton Meghraj. The state government had commissioned a study on the use of the mill land, where the preferred strategy was to redevelop the area with a mix of non-polluting units like software parks, retail outlets or malls, as well as residential and office blocks.
Though the idea, as mentioned above, was to provide one third as open space and leisure facilities, one third for low cost housing and the balance for private sector commercial and residential purposes. Much remains to be seen as to how strong the political will stand up to the lobby is.
5.4 Expert’s Views
“In the view of the Huge acres of land available, development can take place in a planned manner, and the land is ideal for setting up malls and retail outlets, where space has always been a major constraint”, CMIPC general manager, commercial, Ms Revathi Roy said. The CMIPC undertook a study on the key factor necessary for developing retail sites. The study identified that in terms of property inputs, it is vital to have a good location, a properly conceived design that can be planned out only if there is a ample space, and of course, the need for a professionally managed centre. Ms Roy attributed the Lower Parel mill areas to have all these three aspects. The fact that Lower Parel has a number of residential colonies and good accessibility in terms of the road that is off the race course, attribute it to be a location. With the vast availability of space considering that each mills has atleast 4.5 to five acres of space, “there is adequate opportunity for each activity such as parking, food courts, loading and unloading areas, etc., all that is necessary to setting up a shopping mall”, she said adding shopping was conceived as “a retail theatre for frequent visit”. Planning of a shopping mall had to be horizontal as “vertical movement is difficult and becomes an obstruction for people to shop and discourages repeat visit”, she added.
Residential development seems to be the most feasible option for developing the land being freed by mill owners. Most of these mills are located around Byculla, Lower Parel and Dadar region; all of these areas are good options for homebuyers who cannot afford the steep south Mumbai reality rates but want to be close to the area. Wadala, another non-prime location in central Mumbai, which has been popular with the middle class, has recently witnessed a surge in residential development activity.
Some mills in the Lower Parel area like Kamla mills and Phoenix mills, which are privately owned, have successfully repositioned themselves as destinations for retail; they also boast of quality commercial and residential developments.
However, most developers are making the most of the available land with a residential-commercial mix. The Piramal mill in Worli has tied up with the Mulund based Marathon group and is a building a 30 storeyed residential tower along with a number of corporate offices. (see box 2). “This level of prices and supply is bound to put pressure on high-end projects in the suburbs.
Box 2: Already in the pipelines…..
The big that have been cleared for development include around 1.6m sq.ft at Bombay Dyeing’s spring mills, 1m sq.ft at the Lower Parel unit of Morarjee Gokuldas mills, 7,00,000 sq.ft of simplex mills, and 3,00,000 sq.ft belonging to dawn mills. The Thackersay Group’s Hindustan spinning and weaving mills’ Crown mill unit is also expected to bring around 1,10,000 sq.ft on to the market.
Among the big price pointers in the mill development is Parimal mills. The group has begun development of around 4,00,000 sq.ft of residential construction off the Lower Parel-Worli link road in a JV with the Mayur Shah-promoted Marathon Group.
The Parimal residential project has recently opened bookings at a price of Rs 4,350 a sq.ft. This is considered low for residential property into Parel-Worli area, especially when Phoenix mills, situated in the vicinity sold its residential property not too long ago between Rs 6,000-7,000 per sq.ft. Three years ago, the Marathon group has also successfully marketed ‘Marathon Towers’ developed in an old oil mill property opposite the Bombay Dyeing mills on Pandurang Bhudkar Marg in the Rs 8000-10000 per sq.ft range.
Another 1m sq.ft of mostly commercial real estate is coming up in the Lower Parel unit of the Morarjee Gokuldas spinning and weaving mills. Work on the project is already begun, with the demolition and the clearing of old factory structures and debris.
The Hindustan spinning and weaving mills, which has three units in Mumbai, has tacit approval for developing 1,10,000 sq.ft of land belonging to the Crown mill at Prabhadevi, and has plan to put on the market a joint venture operation with the CL Raheja group. However, the big goldmine for the group, the Mahalaxmi units which have over 64,000 sq.mtr or 46 acres have not received approval for development yet.
Another large development that has taken off is the simplex mills projects which involves the construction of over 7,00,000 sq.ft of real estate at the mills’ campus at Jacob Circle. The residential-commercial mix distributed over several high rise buildings is being developed into JV with Godrej Properties.
Thus, we see that mill land has suddenly become the most important subject for real estate development in Mumbai. Mumbai, the commercial capital of India is having 437.71 sq. kms of land. Total land available or occupied is 68.71 sq. kms.
Maharashtra, the state in which Mumbai lies, remains India’s premier location for industrial developments. Construction of industrial developments in the state is taking place in the greater Mumbai area.
Textile mills hold 400 to 500 acres of land just in the heart of Greater Mumbai. Proximity to South Mumbai and well connected to both the suburban lines, these mills land have approximately 200 acres to be constructed and sold. Huge land will be now available for private developers for big housing complexes.
A big chunk of Mumbai’s textile mill lands, estimated at around five million sq. ft has been cleared for development. This large supply of commercial and residential property stock, mostly concentrated in the centre of the island city, is likely to put strong downward pressure on upscale property prices throughout the city.
The release of mill land can be viewed as both a threat and an opportunity.
Residential –commercial mix development seems to be the most feasible option for developing the land being freed by mill owners as well.