DLF changes tack in Mumbai realty market

14 Mar 2010, 0334 hrs IST, Mayur Shetty, ET Bureau

MUMBAI: In a move that could add 5-million sq ft to Mumbai’s high-end residential market, the country’s largest developer, DLF, has decided to change the end use of its Lower Parel property. 

DLF had acquired the defunct mill land in Lower Parel in an auction conducted by state-owned National Textile Corporation in 2005. It had bid Rs 702 crore for a 17.5 acre plot — a record price at that point — while stepping into the Mumbai market. But while buyers of some of the other plots in the auction have already completed their construction, DLF has chosen to wait and watch. 

Industry officials feel that switching the project from a commercial complex to residential makes sense, given the oversupply in office space. While residential rates have firmed up in the city, lease rentals as well as prices are still way below the peak levels. 

Recently in a Rs 650-crore deal, Axis Bank purchased nearly 4 lakh sq ft of office space developed by Bombay Dyeing in its erstwhile Mill land in Lower Parel. The bank’s acquisition price works out to nearly Rs 16,000 per sq ft, which is significantly lower than Rs 20,000-Rs 25,000 being quoted for top-end residential properties in the same locality. 

When contacted, a DLF spokesperson refused to comment on the matter. 

“The commercial real estate market is facing oversupply. Buyers are also concerned that as the area develops there will be more traffic congestion in the Tusli Pipe road (the arterial road for mill lands in Lower Parel),” said an official with HDFC Realty, which brokered the Axis Bank deal and another Rs 200-crore transaction by SBI Life. 

Several builders were banking on the commercial property market, as municipal authorities grant higher development rights for properties earmarked for hospitality and information technology businesses. “Many developers have gone for commercial property because they can get higher FSI (floor space index). Also, they felt these real estate assets could generate a regular rental income,” said a leading broker. 

However, DLF is not the only builder to change a commercial project into residential. Last year, Mumbai-based Ackruti decided to build a residential building in a property set aside for a mall at Andheri in North-western Mumbai. Besides supply of fresh commercial real estate in Lower Parel, several million sq ft of office premises are expected to come up for occupation in the Andheri-Kurla Road. HSBC in a recent report on commercial real estate had said office rentals have fallen by 39% from their peak levels.