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Ruling on mill land sale may push up real estate prices

A fast track plan to redevelop Mumbai mills may help sort out the issue

LANDMARK JUDGMENT: The remains of a demolished mill in Mumbai. — Photo: Vivek Bendre

THE OLD sobriquet that Mumbai enjoyed being the `Manchester of the East' owing to its grand textile mills may be long gone, what with the mills having fallen out of favour, but the legacy of these old giants remains. The Government-owned National Textile Corporation (NTC) sold some of its mill land in central Mumbai through a tendering process earlier this year but a landmark ruling by the Bombay High Court last week declared these sales as illegal. This is likely to have a far-reaching effect on the real estate industry in Mumbai.

Pranay Vakil, Chairman, Knight Frank (India), a leading property consultant firm, said, "When anyone tries to interfere with demand and supply, prices are bound to rise.'' He added that prices would go up given limited supply and the perception that prices would rise would lead sellers to delay sale.

According to Mofatraj Munoth, President, Maharashtra Chamber of Housing Industry (MCHI), and Chairman and Managing Director, Kalpataru group, "The market is governed by demand and supply and if suddenly such a large supply of real estate has been strangled, the consequence could be a flare up in real estate prices.''

Of the 25 NTC mills in Mumbai, five were sold between March and July 2005 covering an area of 50 acres — Apollo, Mumbai Textile, Elphinstone, Kohinoor Mills No. 3 and Jupiter Mills. Apollo Mills covering 8 acres was sold to Lodha Builders for Rs. 180 crore, Mumbai Textile Mills covering 18 acres to DLF for Rs. 702 crore, Elphinstone Mills covering eight acres to India Bulls for Rs. 441 crore, Kohinoor Mills No. 3 spanning five acres to Matoshree Realtors and Kohinoor Group for Rs. 421 crore and Jupiter Mills spanning 11 acres to India Bulls for Rs. 276 crore.

In what was its final order on a public interest litigation (PIL) challenging the 2001 amendment which significantly reduced the public share of mill land, the court struck down the sale of five mills for a total of Rs. 2,020 crore by the NTC as being contrary to the scheme worked out by the Board of Industrial and Financial Reconstruction (BIFR) scheme.

Court order

The court has ruled that sale of mill land must conform to the formula in Development Control Rule 58 (DCR 58) that permits the owner to sell one third while handing over a third to the municipal corporation for open spaces and a third for low cost housing to the Maharashtra Housing and Area Development Authority (MHADA).

The High Court ruled that the Government's claim that the `open lands' in mills to be shared with public agencies under DCR 58 only referred to area not covered by existing structures was wrong and should mean all "open lands'' including those that become vacant once structures are demolished.

Mr. Vakil said that the whole issue is "one holy mess.'' He said, "Already stamp duty for four of the five mills has been paid and at five per cent of Rs. 2,020 crore, it amounts to Rs. 100 crore. All letters of allotment have to be registered and these are evidence in a court of law and buyers have borrowed money from institutions on the basis of this registration. While the developer may repay the buyers the original sum, prices have already shot up — in some cases by up to 60 per cent. What happens then?''

Balaji Rao, Managing Director, TCG Real Estate, said, "The Government should get on to the fast track and clarify as well as catalyse the redevelopment of the mills. Otherwise this whole thing will get delayed. What needs to be done by the Government now is get the right interpretation of the High Court ruling passed and set a time-frame for the redevelopment.''

Impact on FDI

There is also the other aspect of sending the right message as the Government earlier this year decided to permit foreign direct investment (FDI) in the real estate sector.

Sanjay Dutt, Director, Transaction Services, Cushman & Wakefield — India, said, "The Government has taken steps to allow FDI in the real estate sector, but this development will certainly make many overseas participants and buyers cautious as their first stop would be Mumbai,'' said Mr. Dutt.

RAMNATH SUBBU

in Mumbai

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