Why Are India's Rich And Famous Buying Homes In This Business District?

Eight years ago, a four-bedroom, 3,475 sq. ft. flat in Nariman Point in Mumbai was auctioned off in City Bank's Bandra Kurla Complex office for Rs. 34 crore. At least in official documents, it was India's largest transaction ever in residential property that year. Nariman Point was then the de facto and de jure Central Business District (CBD) of Mumbai.

Recently, Bollywood actor Sonam Kapoor bought a 7,000 sq. ft. in Sunteck Signature Island in the Bandra Kurla Complex (BKC) for Rs. 35 crore. This was followed by Aishwarya Rai buying a Rs 21 crore flat in the same complex. But, even more expensive apartments sales happen in the BKC, including the Signature Island. In April this year, industrialist Uday Kotak bought an 11,000 sq. ft. apartment in the Signature Island for Rs 53 crore.

Of course, expensive deals are happening elsewhere too. Recently, Aditya Birla Group Chairman Kumar Mangalam Birla purchased Jatia House in Mumbai's Malabar Hill for Rs 425 crore, while Poonawalla Group Chairperson Cyrus Poonawalla bought Lincoln House, an iconic property in the city's Breach Candy locality, for Rs 750 crore. But, Bandra Kurla Complex is now the de-facto CBD of Mumbai, and not Nariman Point. Bollywood stars, wealthy bankers and industrialists are now buying expensive homes in the BKC.  According to media reports, recently, pharmaceutical firm Abbott India Ltd bought 500,000 sq. ft. of office space at Godrej BKC in Mumbai's Bandra Kurla Complex (BKC) for Rs 1400 crore. This is one of the largest transactions in commercial real estate in India's history. 

How did this happen?

The development of BKC was an attempt to create a new CBD in Mumbai, to ease the pressure off South Mumbai. But, not long ago, many economists found this laughable as they believed India's urban planners knew little about building new cities. Though Nariman Point had large towers with corporate offices, there was nothing else that they found impressive about it.

The Mumbai Metropolitan Region Development Authority planned the BKC in 1971. During the course of many decades, the National Stock Exchange, the Securities and Exchange Board of India (SEBI), the National Commodity and Derivatives Exchange (NCDEX) and other major Indian and global banks chose the BKC as their preferred office destination.

Source: PropTiger Data Labs Report
There are reasons why the Bandra Kurla Complex flourished, compelling Nariman Point to relinquish its status as the CBD of Mumbai. The answer, partly, lies in the residential floor space index (FSI) levels within Mumbai.

Real estate in Mumbai faces many constraints. A major constraint is not the low FSI itself, but the ratio between the highest FSI value and the lowest FSI value within the city. In the New York City, the ratio is 30 because the highest residential FSI is 15 and the lowest, 0.5. But, in Mumbai, the ratio between the highest residential FSI and the lowest is 4. The lowest residential FSI is 0.5, in the northwest suburb of Gorai. The highest residential FSI is 2, in the Bandra Kurla Complex. The emergence of the BKC as an expensive residential locality and the most expensive business district in India is a testimonial to this fact.

But, this is only the tip of the iceberg. The BKC is close to the Bandra railway station. The BKC is also 10-13 kilometer far from the domestic and international airports, while the Nariman is 25-30 kilometer away.

The Complex was not always deeply linked to transportation networks though the Dharavi slum next to it was. Public utilities in the BKC are poorly functioning too. Still, such barriers could have been easily overcome. High FSI values could have been traded for funds. Idle government assets, when liquidated, yield high returns. For instance, in 2006-07, by auctioning off 13 hectares of land in the BKC, the MMRDA generated $ 1.2 billion. This is ten times the infrastructure spending of the MMRDA in 2004-2005, and at that point, six times the value of the municipal bonds issued by urban local authorities and local utilities in India in over a decade.

But, of course, government has improved drainage, and reduced pollution. The government has also built the Bandra-Worli Sea Link that dramatically cut the commuting time between Bandra and Worli from 60 minutes to 7 minutes. This has paid off.

As the former World Bank researcher Alain Bertaud perceptively observed, there are many more reasons, apart from higher FSI and locational advantage that the BKC enjoys, for the commercial district to thrive. Mumbai's enormous topographical constraints, especially in the case of Nariman Point, count as one.

If a city is situated inland, or on a straight coastline, it is easier for it to expand. But, Mumbai is situated on a narrow peninsula, surrounded by water on three sides. Mumbai was a city built on a peninsula because the Bombay Port Trust found it easier to install a port here. Nariman Point was situated on a narrow peninsula. Mumbai's earlier CBD, Ballard Estate too was built on land reclaimed from the sea. A whopping 66% of the area within 25 kilometers from the city center is covered by water. This is not true of similar Asian cities. In Jakarta, it is 22%. In Seoul, it is 5%.

The built-up area of Mumbai is even less. Within 25 kilometers from its earlier city center, Mumbai's built-up area is 212 sq. km., while it is 1438 sq. km. for Jakarta and 360 sq. km. for Seoul. New York, Singapore and Hong Kong are built on islands too, but such cities have skyscrapers. In contrast, Mumbai - a city that cannot build out - does not build up either.

Mumbai is very different from these cities in the structure of its urban space too. How?

Usually, in cities across the world, the FSI is highest in the CBD. As the distance from the CBD rises, the FSI steeply declines. This is true of the New York City. This is very true of Singapore, Seoul and Hong Kong. This is true of almost every major city in the world because it allows the concentration of households and families where economic activity is greater. But, this is not true of Mumbai.

In much of island city, the FSI is 1.33. The BKC, around 15 kilometers from Mumbai's earlier central city, has an FSI of 4. Moreover, the number of people within ten kilometers of the BKC was many times that of the number of people within ten kilometers from Nariman point, even when Nariman Point enjoyed its indisputed status as Mumbai's CBD. The reason is that unlike Ballard Estate and Nariman Point, the BKC has access to a larger area, and is closer to centrally located areas like Bandra, Kurla, Mahim and Santacruz . This was precisely why many urban planners had long wanted Mumbai to shift its CBD from Nariman Point to the BKC.

In some ways, it seems that they were right.