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- Realtors turning business complexes into housing projects: Crisil
A huge oversupply in retail real estate sector is forcing Indian developers to turn their mall projects into homes. About 96 million sq ft of retail space is expected to be added by 2013 in the top 10 cities in India, while demand will be only for 34 million sq ft, said Crisil Research.
This will create a significant demandsupply mismatch, arresting the rise in rentals. Bangalore-based , RMZ Corporation has recently converted its 1.1 million sq feet mall plan into residential-cum-hotel project. The firm had earlier tried to reduce the size of the mall to 500,000 sq ft and add a new office space component. "We are now building luxury homes at the location," said Raj Menda, managing director of RMZ Corp.
Looking at the numbers, many real estate developers in India are seeking to convert their malls into mixed-use or residential projects. "This phenomenon has increased recently," said Amit Bagaria, chairman of retail consultancy Asipac. While some micro markets in Bangalore will see an over supply of 168%, Hyderabad , on the other hand, from a present shortfall of 66% is headed for an oversupply that could go as high as 322% in 2014. The Mumbai Metropolitan Region will see an oversupply of 58% with Pune at 128%.
Because of the expected oversupply , a number of big mall projects, such as Atul Ruia's Pheonix Market City mall, Sobha Developers' Global mall, RMZ Corporation's Galleria in Bangalore, Parsvanath's Metro mall in Delhi and Lanco's mall projects, are either being redesigned or shelved. Delhi-based builder Parsvnath has shelved five retail projects due to fund crunch.
Moreover, Pheonix Mills, Entertainment World Developers , Salarpuria, Omaxe, IVRCL and Goel Ganga Group are reconsidering their mall projects in Hyderabad, Bangalore and Pune. Sobha Developers has included a residential component in its maiden mall project , which it is jointly developing with Davnam Constructions. The mall was earlier expected to have an ice skating rink, amusement park, hotel and a commercial tower as well.
"With many other malls coming up in the same vicinity , Sobha is building only 660,000 sq ft of retail space while the rest will be residential ," said a person with direct knowledge of the development . Sobha Developers confirmed the development but refused to comment on it. Delhi-based Omaxe Ltd said that over supply of mall spaces will only lead to stress on rentals and lower occupancy.
"Building malls is not a lucrative business venture as the demand from retailers is very lukewarm , especially in the NCR. We are not looking at setting up new retail project now. The decision to launch new projects will be entirely linked to foreign direct investment in retail," said Rohtas Goel, managing director of Omaxe.