Unitech to Develop Mumbai Slums Into Luxury Housing

Jan. 13 (Bloomberg) -- Unitech Ltd., India’s second-biggest developer, expects its share of sales from redeveloping Mumbai slums into luxury apartments to triple in three years and boost profit, Managing Director Sanjay Chandra said.

Unitech, based in New Delhi, is developing 100 acres (40 hectares) of land in north Mumbai’s Santacruz area, near the city’s airport, by knocking down shacks typically built with tin, asbestos and plastic sheets, and building apartments in towers serviced by high-speed elevators. Slum dwellers will be resettled in smaller apartments in separate buildings on part of the cleared land.

The world’s second-fastest pace of economic growth is boosting incomes for India’s urban population and spurring demand for houses that cost at least 2.5 million rupees ($54,818) in a Mumbai suburb. About 8 million people live in slums in India’s financial capital and surrounding areas, more than the population of Switzerland.

“Mumbai is a lucrative market and prices tend to go up firmly and demand is usually strong,” said Jigar Shah, head of research at Kim Eng Securities India Pvt. in Mumbai. The measures to develop slum areas and build affordable homes “will help lift return on equity and profit.”

Mumbai properties may account for 40 percent of revenue in three years, up from the current 12 percent, Chandra said in an interview in Mumbai.

Moving People

The government’s plan to redevelop larger shanty towns such as the 535-acre Dharavi slum near the new Bandra-Kurla business district has been delayed because of political indecision and disagreements, said Jockin Arputham, founder and president of the National Slum Dwellers Federation. Set up in 1975, the federation, spread over 70 towns, has 15 million slum dwellers as members through their respective local associations.

“It’s not easy to do redevelopment as moving people is a complex task,” said Anshuman Magazine, New Delhi-based managing director of CB Richard Ellis for South Asia. “Not everyone may want to be relocated for economic reasons, not to mention legal and other regulatory issues, and the state of the real estate market.”

Shares of Unitech gained 0.2 percent to 88.7 rupees at the close of Mumbai trading. They more than doubled last year compared with an 81 percent increase in the benchmark index.

Unitech, which posted a 51 percent drop in profit in the three months ended Sept. 30, is also building budget homes. It has cut the time to build low-cost housing by 40 percent as it tries to boost revenue in a nation facing a shortage of 24.7 million homes.

‘Assembly Line’

The company is trying to emulate the success developers including Cyrela Brazil Realty SA Empreendimentos e Participacoes have had in boosting profit from selling budget homes, Chandra said. Cyrela, Brazil’s biggest developer, tripled profit in the third quarter and plans to sell 19,000 homes this year, according to a company presentation.

“We are looking at it as an assembly line kind of business model,” Chandra, 37, said. “If you make an affordable product, the margins will be lower, but the capital will churn much faster, so your return on equity will be much faster.”

Success for Unitech will depend on government laws, Chandra said. The company, which began selling its Unihomes brand of budget housing in Bhopal, hasn’t built such properties in its biggest market near New Delhi because of rules restricting the number of residents in its housing complexes, he said.

The Unihome brand sells property for about 2 million rupees, according to the company’s Web site.