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HBS Case Study : Dharavi- Developing Asia’s Largest Slum

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Evaluation of risks associated with the Dharavi Redevelopment Project (DRP) and proposal to consider/not consider the project.

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HBS Case Study : Dharavi- Developing Asia’s Largest Slum

  1. 1. DHARAVI MEPVI – Group 5 ABHISHEK PANICKER . KEDAR HUDDAR . KOUSHIK GANGULY . PUSHKAR SABNE . RAKESH KADARKARAI
  2. 2. Case setting ■ March 2009 ■ Dharavi Redevelopment project (DRP) - Government estimate: 3 billion – 40 million sq.ft of commercial space and 30 million sq.ft of residential development – Contribute Rs. 20,000 per family for further maintenance, addtl 20,000 by RP – For every 100 square feet of free housing, the builder was allowed to build and sell 133 square feet – Construct & Maintain all buildings & public areas for 15 years ■ Bid for five sectors, awarded for max one sector ■ Stage 1 - $ 10,000 for EOI application – 100 developers ■ Stage 2 - $ 3.5 Mn security deposit per sector – 19 developers selected
  3. 3. Guidelines ■ Prequalification - Experience in 1 township development – unutilized borrowing capability of $105 million – average annual turnover of $85 million. ■ minimum $9 per square foot of the free-sale component area as a “premium” to the SRA – 10% premium on award, 20% BG, 70% after free sale ■ Bidder’s premium - three economic variables – the cost of construction, – expected market prices – cost of capital
  4. 4. Way ahead Risks ■ Project estimate – 57,000 free houses – Possible to increase to 90,000 ■ 300 sq.ft per family - free, option to buy 100 sq,ft – at cost ■ Disagreement over height allowed, FSI: 4.0 compared to 3.1 in municipality ■ Land prices @ RS 7000 / sq.ft : Neighbouring Sion area: Rs.12,000 / sq.ft ■ Land rates 300 % in 2 years – prices down 25% last year ■ Government floor for Bidder’s Premium is Rs. 450 / sq.ft Options – meet the government’s minimum “bidder’s premium – Submit a proposal well above the minimum – elect not to compete
  5. 5. Scenario analysis
  6. 6. Consideration for slum dweller ■ Allocation & size of housing / work space ■ Tendency to rent-out and shift to another slum ■ 80% earn livelihood from within slum
  7. 7. Id Risk Element Probability Impact Risk Rating Risk Mitigation Plan Risk rating after mitigation 1 Regime change Possible Major Critical - - 2 LandAcquisition from private owners Unlikely Moderate Medium Market rates to be given Land acquisition rule to be deployed Med 3 Agitation by people staying on rent Likely Major Critical Provide safe dwelling to everyone Use proper ID card to identify (Aadhar card) High 4 Land prices continue to fall Possible Major Critical Hold for prices to surge, Mumbai prices will surge Med 5 Resistance from informal (unregistered) business Likely Major Critical Provide one stop license to all the vendors, govt. to form a committee to do the same 1. This will increase govt. revenue in tax collection 2. Illegal activities can stop Med 6 Delay in Environmental clearance Unlikely Moderate Medium To be taken upfront from the govt. Low 7 No cap on additional purchase on construction cost for commercial establishments Most likely Major Critical Cap to be introduced Low 7
  8. 8. Most Likely Likely Possible Unlikely Rare Probability Insignificant Minor Moderate Major Extreme Impact / Consequence Low Medium High Critical 7 3,5 1, 4 2, 6 4 3 6 5 7 Risk Rating 8

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