It may just be the world's most extreme property makeover: 125,000 Bombay slum dwellers are about to have their homes rebuilt by one of the world's hippest architects.

Skidmore, Owings and Merrill (SOM) is renowned for building monolithic skyscrapers. Its works in progress include the Freedom Tower, which will occupy the World Trade Centre site in New York, and the £2 billion Burj Dubai, which, at 818 metres (2,684ft), will be the world's tallest man-made structure when it is completed next year.

By contrast the American firm's latest venture is the low-rise redesign of 124 acres of squalid shantytown. If that sounds like a comedown from the grandeur of its past projects, it shouldn't - the slum's inhabitants are shaping up to be some of SOM's toughest judges yet.

The architect promises that the £500 million project in the Santa Cruz district of Bombay will take cues from developments cited as modern classics, including London's Canary Wharf, the Roppongi Hills district in Tokyo and Battery Park in New York. Bombay's new forest of concrete and glass will also draw on the findings of a team of cultural anthropologists and include features of the city's existing sprawl of conjoining tin roofs and open sewers.

“The slums may not be sanitary but a lot about them works,” Mark Igou, of SOM, said. For instance, the new apartment blocks will have wide corridors and communal areas that mimic the current shantytown's warren of streets and where children can play. “We're talking about third-generation slum dwellers here; we're trying to recreate a similar sense of community,” Mr Igou said. “Everybody will still be within shouting distance.” The project is just one of a host set to transform the look and feel of Bombay. Amid a dearth of supply, the island city boasts some of the world's most expensive real estate, much of which is occupied by makeshift, single-storey slum tenements.

Unitech, the property developer heading the redevelopment, has spent a decade buying up land from hundreds of slum dweller associations on the condition that current inhabitants are given new flats. It expects to reap a £1 billion profit.

It is claimed that slum dwellers will also see windfalls. Unitech reckons that the 269sqft (25sqm) apartments it will build in blocks up to 14 storeys high at a cost of 200,000 rupees (£2,340) each would be worth three million rupees on today's market.

The project faces resistance from residents who have been in their shanties for generations and doubt that SOM can improve their lot.

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