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Mumbai really a safe market


Mukesh Patel shares his views with Rajesh Kulkarni on the impact of the current market slowdown and why he considers Mumbai to be a realty safe haven.

Mukesh Patel, managing director of the Mumbai-based Neelkanth Group, one of India’s oldest real estate development companies founded in 1938 in pre-independence Karachi, is quite upfront when it comes to acknowledging the adverse impact of the current slowdown in the real estate market.

“There has certainly been an impact on sales even at Neelkanth,” he concurs without much ado. “But fortunately for us, our basket of products is quite spread out, so it’s not been that bad for us. We currently have a total of approximately 27.5 lakh sq ft under construction which includes a township project at Panvel, a second homes project at Karnala and a riverfront township project at Thane. All these projects will be ready for delivery in phases over the next three years,” he says.

He points to a number of factors that have helped insulate Neelkanth from the credit crunch. “To begin with our rates offer good value for money. Moreover almost 60-70% of our buyers are often repeat customers or referred buyers who have faith in our brand.”

Given the market scenario, Patel admits buyers are looking for the best deals on offer. “It’s quite a crazy scenario. Buyers are demanding a discount no matter what. If we offer them a rate of Rs5,500 per square foot (psf) with no discount, there are few takers. But if the same project is offered at a rate of Rs6,000 psf, with a ‘discount’ of Rs500 psf thrown in, the same people are quite happy to invest in it.”

According to Patel, with the property market already in a tailspin, a price correction seems a likely prospect at least for the overheated Mumbai market. He says, “We will definitely see a price correction happening in certain pockets of the city with select projects. These days, even a person building one building somewhere likes to call himself a ‘developer’. They neither have the experience, nor the mechanism to execute and manage the cash flows in a bearish market. We are most likely to see a price correction in such projects.”

Patel is however quite bullish about the long term potential of the Mumbai property market. “Mumbai is a safe real estate market because of the genuine demand that it generates,” he affirms.

“You would be surprised to know that the number of flats being churned out at Thane alone is equal to the number in the entire Bengaluru market. Moreover, Mumbai is also the financial hub of the country and hosts some of the top corporate and industrial houses. There has also been some improvement on the vital infrastructure front, although there is still a long way to go. These and many such factors will continue to fuel the growth of Mumbai as well as its satellite towns like Thane and Navi Mumbai. Hence the outlook remains extremely positive from a long term perspective.”

Commenting on the recent Supreme Court judgement upholding DCR (33)7 for Mumbai, Patel feels that while it is a welcome move, it has to be supplemented by improvements in the supporting infrastructure as well.

“Between DCR (33)7 and DCR 33(9) there are more than 20,000 buildings that fall in the category. While these buildings are definitely perilous to those staying in them, while talking about redevelopment, care should be taken to upgrade the infrastructural facilities as well. The existing drainage, sewerage and water lines are now over a century old and are unlikely to be able to cater to the volume generated by the redevelopment.”

From an industry perspective, Patel stresses that a lot needs to be done if quality housing is to be made affordable for the masses while simultaneously ensuring that the developer’s interests are not compromised.

He says, “Even today developers are expected to provide everything under the sun and yet make the project affordable for end users. Completing a project on schedule still poses a huge challenge,” he adds. “Getting the multiple permissions required to commence a project takes a lot of time in the absence of a single window clearance system.”

“For example, a developer developing an integrated township is also expected to create and manage the project’s utilities and infrastructure. It’s an added cost that very few builders are ready to bear and hence it invariably gets loaded on to the cost of the flat, making them even more expensive.

“Now imagine a scenario where a builder who has started a 100-acre township project is unable to develop it beyond 25 acres due to certain constraints. How will the residents of such a township, who are already paying their civic taxes, afford to bear the added cost of maintaining the facilities provided by the builder?”

It’s a compelling argument, but not without a solution as Patel explains. He says, “Instead of looking at developers merely as money-guzzling machines with unlimited funds at their disposal civic bodies need to play a more active role in providing the required infrastructure for such mass projects.

“Developers could be convinced to bear the capital expenditure for providing certain basic amenities to their customers, but the maintenance and upkeep of roads, water supply, sewage system and so on should be borne by municipal bodies,” feels Patel.

“In today’s scenario, developers are expected to start and operate parallel municipalities to maintain such facilities.”

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