Developers shelve commercial projects, opt for residential schemes   

December 28, 2009

The real-estate market is witnessing a new trend. Most information technology parks and commercial office projects are now being converted into residential projects, as most developers are not feeling confident over the projected revival in the commercial segment.

“In the commercial segment, there is a huge oversupply and absorption is very low in the market. A lot of commercial and IT park spaces are now being converted into residential projects. Approximately two million sq ft of commercial projects have recently been converted into residential projects in the island city (mainly at Lower Parel). You can witness many such similar trends in the real-estate market now,” said Pankaj Kapoor, founder, Liases Foras.

Orbit Corporation Ltd, a Mumbai-based developer, has converted its IT park project at Andheri, a Mumbai suburb, into a residential project called ‘Orbit Residency Park’. It will be constructing one bedroom, hall & kitchen (BHK) apartments of approximately 600 sq ft–700 sq ft, one-and-a-half BHK of approximately 700 sq ft–800 sq ft, two BHK of approximately 900 sq ft–985 sq ft, two-and-a-half BHK of approximately 1,000 sq ft, three BHK of approximately 1,300 sq ft-1,400 sq ft and three-and-a- half BHK of approximately 1,350 sq ft-1,450 sq ft.  

Real estate giants like DLF and Unitech have also discontinued many commercial development projects and are converting these ventures into residential projects. DLF has recently de-notified four Special Economic Zones (SEZs), as there is a lack of demand in the commercial space.

“The commercial sector is growing in supply but not in off-take. You can see an over-supply in office space and SEZs. It will still take six months to one year for the absorption to come back. So we have changed our IT park project into a residential project,” said Pujit Aggarwal, managing director and chief executive officer, Orbit Corp.

According to industry sources, Bombay Dyeing’s Dadar and Worli mills, Prakash Cotton Mills’ Lower Parel project and the proposed SEZ by K Raheja Corp in Navi Mumbai are among the commercial projects which are being converted into residential projects.

Bombay Dyeing’s mill lands at Dadar and Worli (at central Mumbai) were supposed to be utilised for two commercial and IT towers earlier. But the company is now converting these lands into residential projects. Moneylife contacted Bombay Dyeing on this development, but received no answer. K Raheja Corp had also planned an IT/ITes project at Navi Mumbai earlier.

“We have still not taken a final call. But we are mostly looking at residential project development,” said Ravinder Jalan, chairman, Prakash Cotton Mills.

During the boom time of 2007, the floor space index (FSI) for residential projects was 1.33 and for IT parks it was 2.66. Ergo, most developers opted to go in for IT parks rather than residential projects. But as the slowdown hit the market, there was no movement in sales in any of the realty sectors. After a year of slowdown, the residential segment has started showing some signs of recovery. The commercial segment is expected to take a year more to show some signs of recovery. This is why developers are converting their commercial projects into residential projects.

The additional FSI being offered (from 2.66 to 4), if developers also construct parking spaces in residential properties, is also attracting developers.

“The higher FSI option in the residential segment is pulling in more and more developers,” said Mr Kapoor.

— Pallabika Ganguly