Knight Frank flags risks in Mumbai’s redevelopment boom amid market plateau
While developers are offering high shares of floor space index (FSI) to societies, Knight Frank cautions that if free-sale revenues cannot cover costs, projects could become unviable
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The surge in redevelopment projects in Mumbai could be a cause for alarm if the current buoyancy in the real estate cycle subsides or fails to sustain in the medium term, according to property consultant Knight Frank, which released a comprehensive report on the segment on Wednesday.
The financial capital is currently reverberating to the sounds of intense construction activity as old and ageing housing societies are making way for new buildings, with upgraded amenities and better facilities.
Redevelopment is often necessary when buildings are over 30 years old and at risk of structural damage. The process involves demolishing existing buildings and constructing new ones. The developer is assured of extra space or a free sale portion in the same premises, which can be sold to new customers.
High FSI allocation may threaten project cash flows
The expectations of a rise in prices and consistent demand from customers are fuelling the redevelopment boom. Developers, in their desire to get hold of land in a city like Mumbai, often allocate a higher threshold of the total permissible floor space index to members, and this is where the danger lies if demand does not sustain, according to Gulam Zia, Senior Executive Director – Research, Advisory, Infrastructure and Valuation at KFI.
Developers often tend to allocate more than 50 per cent of the total area to the society, which has the potential to threaten cash flows. Anything from 30-35 per cent is a safe range.
“If revenues from free sale cannot cover the stack, the project is unviable,” the report notes. The free-sale portion of FSI carries the entire financial load of the project.
900 plus societies signed deals, unlocking 327 acres since 2020
As per the report, over 900 housing societies have signed redevelopment agreements since 2020, unlocking nearly 327 acres of potential land area. By 2030, the current society redevelopment projects in the Mumbai region would add a total of 44,277 new homes with a value of over Rs 13000 crore, it said.
Typically, a redevelopment project timeline spans 8-10 years, beginning with the housing society’s initiation of the process.
Zia pointed out that so long as the current upswing in the real estate cycle continues, redevelopments can go as planned, with the developers involved in it able to generate profits and keep the projects viable.
However, the real estate sector is notoriously fickle and operates in cycles, with customer demand dependent on robust economic fundamentals, a sustained low-interest rate environment and the capacity to spend.
The current boom in the cycle dates from pandemic years, and while the numbers suggest that housing registrations are still going strong, there are signs of an incipient plateauing in sales.
“The economics of society redevelopment must be viewed through the lens of sustainability. With overheated market conditions and sharply rising prices, we are at a stage where excessive demand and aggressive offers threaten long-term viability,” said Zia.
Published on September 10, 2025
