Redevelopment Projects in India: A Deep Dive into Opportunity, Risk, and Execution

Market Context  

Real estate follows a 10-year cycle. We are currently in year 4, with a slowdown expected over the next 1–2 years. This makes portfolio balance and risk diversification critical for developers.   

Most builders today operate a portfolio play. However, many portfolios are not adequately balanced for a downturn. As affordable housing was popular in the recent past, luxury housing is currently aligned with the upturn.    

Redevelopment has emerged as a new variant/category to diversify project portfolios. As a result, almost everyone is participating – from large, reputed players (Tata, Godrej, Hiranandani) to smaller, unknown developers.  

But how is this redevelopment turning the tables? Let’s quickly understand this with a simple comparison: 

Greenfield vs. Redevelopment Projects 

Size/Nature of the Opportunity

• 1.23 million sqm. signed up for redevelopment. 910 developer agreements
• Average size: 1,350 sqm. 90% of agreements are small plots (~1,000 sqm)
• Clustering is difficult due to geographic dispersion.
• Typical project lifecycle: 6 to 8 years (including alignment, vacating, and demolition)
• 70% of redevelopment in Mumbai is in the western suburbs, & 25% in the central suburbs  

Types of Redevelopment

1. Slum Redevelopment

• Easier execution due to government-defined compensation norms
• Definitely phased to preserve the slum ecosystem.
• Structured as public–private partnerships
• Higher political risk, but expected to progress faster than society’s redevelopment

2. Society Redevelopment

• Significantly more complex due to alignment challenges among residents
• Longer cycles (7-8 years)
• All society redevelopment caters to premium housing.
• Value creation comes from additional carpet area or FSI.
• Builder margins: 15-20% over a 3-5 year construction period. So delays eat into his margin.
• The government also makes money through taxes, approval fees, & GST on sales to new owners.  

Why Redevelopment Matters

Since redevelopment is a debatable topic and many see it as a new value proposition, while for some it represents the loss of heritage and community identity, it remains a subject of intense discussion.

Against this backdrop, several key advantages of redevelopment have emerged:

• Enables the creation of new housing stock in crowded cities like Mumbai and areas such as Pimpri-Chinchwad
• Existing buildings are designed for decades, not centuries; redevelopment addresses safety risks.
• A win-win for all: Existing owners receive larger carpet areas or financial compensation. Builder, Govt, Bank all make money.
• New value is unlocked from existing land parcels.  

Together, these factors illustrate how redevelopment can serve as a catalyst for urban renewal, offering tangible benefits for individuals, communities, and the broader economy. However, for redevelopment to truly succeed, it must be approached with sensitivity to local needs and a commitment to preserving neighborhoods’ social fabric.

Developer Landscape & Risk

Despite the growing interest and opportunities in redevelopment, the sector is fraught with several obstacles.

• 90% of redevelopment projects fall in the 1,000-1,500 sq. m. plot size
• Lower profitability attracts smaller developers, often with poorer completion track records. This increases execution and credit risk.
• There is a strong need for transparent disclosure of developer track records- for customers, financiers, and regulators.  

Key Challenges in Redevelopment

• • Multiple approval authorities: Urban Development, BMC, MHADA, Environment
  • Approval timelines: 1-2 years. This is 5-10% of the project cost, incurred upfront. Financing becomes available post-approvals.  
  • Typically, disbursements are milestone-linked, but projects can halt due to disputes, litigation, political interference, or regulatory changes.
  • Regulatory frameworks around GST, financing, taxation, and developer agreements are still evolving.
  • Gentry/ Social parity between current and new owners is difficult, influencing product design. Otherwise, separate housing blocks are created.
  • 25% of redevelopment projects are currently stalled or under dispute
  • Credit exposure to redevelopment needs more care.
  • Under RERA, the society is treated as the landowner and developer. Societies are not protected by RERA unless land ownership is transferred to the developer.

• • Developers are required to place three years’ rent in escrow, increasing financing costs. And in the event of an overrun, it is uncharted territory.