Maharashtra's Slum Rehabilitation Scheme Faces Uncertain Future Amidst Market Slump
The Maharashtra government's ambitious slum rehabilitation authority (SRA) scheme is facing significant headwinds due to the ongoing downturn in the real estate market. This slump has cast a shadow over the future of numerous SRA projects, delaying the envisioned transformation of Mumbai's slums. One prominent SRA developer expressed their disillusionment, stating, “I have decided to pull out completely. It just doesn’t make sense to get involved in these schemes anymore.” With approximately 1,100 schemes sanctioned by the SRA recently, the current market conditions raise concerns about the timely execution of these projects, potentially prolonging the city's struggle with its slums for an extended period.
SRA CEO Remains Optimistic Despite Market Downturn
Despite the challenges, SRA CEO Shrikant Singh maintains an optimistic outlook. He acknowledges the downturn affecting all sectors, including the SRA, but believes that a resurgence in demand for flats would favor SRA projects. Singh argues, “But if the demand for flats picks up, those under SRA will be the first ones to be sold as they are cheaper than the ready reckoner rates.” These ready reckoner rates, determined by the state government and varying across municipal wards, serve as benchmarks for flat prices. This price advantage, according to Singh, could position SRA flats attractively in a recovering market.
Developers Highlight Challenges in SRA Project Economics
The SRA scheme mandates developers to secure consent from at least 60% of slum occupants, relocate them to transit camps, and provide them with free 300 sq-ft pucca flats. In return, developers gain the right to construct and sell flats on the vacated land with additional floor space index (FSI). Ashutosh Rane, an experienced SRA developer, explains that the financial viability of these projects hinges on the profits generated from the sale of these additional units. However, with declining property prices coupled with a stagnant demand for flats, Rane emphasizes the dwindling incentive for developers to pursue SRA projects. “The entire economics of these schemes was based on the profits to be made from the free-sale component. With property prices on the downslide and a general freeze in demand for flats, there is absolutely no incentive to go in for SRA projects anymore.”
Rising Costs and Financing Hurdles Exacerbate Challenges
Rane points out that the average cost of an SRA project is approximately Rs 4,000 per square foot. Given that free-sale SRA flats are priced lower than those in non-SRA projects, profit margins have shrunk considerably. Furthermore, the reluctance of financial institutions to provide housing loans presents a major hurdle for prospective buyers of SRA flats. The implementation of an SRA project typically takes around four years, accounting for the time required to obtain slum-dweller consent and construct transit camps. Developers face the burden of high interest rates, exceeding 25%, while financing these projects during this period. The recent fall in property prices adds further strain on SRA developers, acting as a significant impediment to their progress.
Case Study: Sahana Builders' Worli Project
Sahana Builders exemplifies the challenges faced by SRA developers. Their mega SRA project in Worli, initiated four years ago, has involved substantial investment in constructing flats with various amenities for slum dwellers and a nullah as per BMC requirements. The firm has yet to commence construction of free-sale flats and anticipates several more years before returns materialize. The extended project timelines and uncertain market conditions add to the risks and financial burden shouldered by SRA developers.