Asia's biggest slum set to turn into India's Madison Avenue

Shaikh Abu Khaled - or Anjum, as he prefers to be known – manages to walk the streets of the 13th compound in Dharavi, Asia's largest slum, with the confident stride of a man of status. This is an impressive feat as monsoon rains have reduced the road to a marsh of puddles and refuse. Negotiating the street in Dharavi's industrial centre requires stepping only where enough layers of sodden sacking have been laid, while weaving past a stream of open-shirted porters, swivelling to avoid Tata trucks, and sidestepping the occasional goat.

With his '70s-style glasses and untucked brown shirt, Anjum makes an unlikely business mogul, but all those he passes duck their heads in a muted salute. As president of the Dharavi Businessmen's Welfare Association, representing Dharavi's 20,000 warehouse businesses, he is a man to be reckoned with. "They think Dharavi is a dirty place," he says, "but all the recycling work is done here. If you stop recycling, all Mumbai would be a Dharavi."

In the warehouse next door, Anwar and Irfan Mohammed run their plastics business, earning $250 to $400 a month turning the scraps from a city of 19 million into uniform pellets. A makeshift aluminium smelter nearby casts gleaming ingots from old Coke cans.

"All the dirty material from all Mumbai is getting a new lease on life here," Anjum declares. With countless enterprises making everything from snacks to medical sutures, Dharavi has a turnover of more than $750m a year. The "slum" label is too simplistic: Dharavi is more like a medieval city, over-crowded, chaotic, but buzzing with enterprise.

Architect Mukesh Mehta also enjoys the trappings of status. Dressed in a suit and crisp shirt, the former New York property developer can only squeeze in an interview if it takes place in the back seat of his chauffeured sedan.

If all goes to plan, by May next year, five consortia of property developers selected by Mehta will begin to raze Dharavi to the ground. In its place will come high-rise blocks for its 600,000 inhabitants, an industrial park for its businesses, and gleaming commercial and residential developments for sale. For Mehta this comes after more than a decade's lobbying. "My motivation originally was purely profit," Mehta says; he proposed the scheme in 1997. "I was going there as a developer." Instead, city authorities appointed him as a consultant. It is India's most ambitious slum rehabilitation: the developers will make over $1.2bn profit, and Mehta will earn a $25m fee.

Rental values in next-door Bandra Kurla have risen 58 per cent from a year ago to $93,000 per sq ft per year – on a par with Madison Avenue – according to the latest figures from real estate firm Cushman & Wakefield.

But Mehta is adamant the inhabitants will benefit. "We're telling the slum-dwellers: 'Instead of the 100sq ft space you are living in, you will have 225sq ft. Instead of sharing one toilet between 1,500, you will have your own toilet, running water, well-lit homes. We will provide schools, colleges and parks.' For somebody to say, in spite of this, people are going to protest, there's something wrong."

But Anjum and his members have joined the campaign to block the scheme; it mounted protests on 18 June and 23 July. Anjum says: "We built Dharavi, we've been here 50 years. Now Dharavi has become the central place of the city, they want to take it away from us."

Business owners will also receive 225sq ft of space, free, but rules for buying further space are unclear and the government has refused to show any layout plans for the business park.

Adolf Tragler, whose Slum Redevelopment Society works with slum-dwellers, agrees that, for most, the offer of a larger flat is appealing. But, in a decision that has outraged campaigners, Mumbai's government has declared that, unlike previous schemes, Dharavi's will not need the approval of 70 per cent of inhabitants. "Why should they be allowed to say 'yes' or 'no'?" asks Mehta. "The government says they're encroachers."

Still, it is hard to see how the developers will be able to move 600,000 people who are determined to stay put.

Jockin Arputham, the head of India's National Slum Dwellers Federation, has threatened to cripple the city by blocking two commuter rail lines. "The government will have to climb down," he says, "because what they are doing is illegal and unfair. Mukesh Mehta's solution is not possible, because what he wants, we don't want."

Welcome to the mad, mad world of Mumbai, where they'll pay you $1.6m to move out of your rented flat

When the tenants of Avasia House handed over their keys to Orbit Corporation last week, there was no grumbling: each of the eight residents was paid $1.6m just to leave – not bad for tenants with no ownership rights, who paid just $6 a month in rent for their three-bedroom apartments.

Welcome to Mumbai, where sheer population pressure, restrictive geography, and absurd rent control laws have fostered one of the world's most skewed property markets.

Office rents in the emerging central business districts of Worli and Lower Parel are up 100 per cent since last July, according to property firm Cushman & Wakefield, touching $118 per sq ft per year, as high as parts of Tokyo, Paris, London and New York. And while Delhi's rents fall as oversupply kicks in, Mumbai prices look stable.

Expats looking to rent a three-bedroom flat in a smart area such as Neapan Sea Road, home to Avasia House, will pay $3,000 to $6,000 a month, up to 1,000 times what Orbit's tenants were paying last month. Landlords routinely ask for upto $100,000 up front – in cash.

That's why it makes sense for Orbit to pay $12.8m to tenants on top of the $3.2m cost of Avasia House. Rent has been frozen at 1940 levels across the city, and tenants cannot be evicted. In 19,000 old buildings, landlords can only hike rents by 4 per cent a year. So freeing buildings from the Rent Control Act transforms their value.

In the early 1990s, developers began to target slums in the city centre. Slum reclamation specialists such as Orbit sprang up, realising that profits could be vast. Dharavi will be the slum development to crown them all.

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