REDEVELOPMENT, A DISGUST OF DEVELOPERS
Impending redevelopment projects shall be exorbitantly expensive now as the Maharashtra Government has approved a proposal to hike Ready Recknor Rates linked premium FSI rates i.e. 33% of TDR FSI to be purchased from the State Government for loading on redevelopment projects in Mumbai Suburban areas.
The redevelopment activities in Mumbai is going through a bad phase since the Developers are hard-caught in brutal financial and administrative crisis due to increase in project costs, mounting up of unsold stock, debt accruals, diversion of fund, increased cost of labour & material, delay in seeking approvals, frequent amendments in DCR, imperfect planning, litigation, violation of terms of redevelopment, unauthorised construction, ever increasing demands from the housing societies in the area of corpus fund and an additional carpet area free of cost and many more reasons which have attributed to almost hold-up or failure of redevelopment projects.
While numerous factors contribute to the hike in real estate prices, there is one significant factor, known as “Ready Reckoner Rates” that has a bigger part in deciding the movement of real estate prices. These rates are the prices of the residential property, land or commercial property for a given area and is published and regulated by the State Government. These rates are regularly revised on a yearly basis depending on the perception about the Government for such price revisions. Therefore, a homeowner or buyer would be required to pay the stamp duty or registration charges, not below such stated Ready Reckoner Rates or the actual price of the property, whichever is higher.
Adding to the misfortune of Developers, recently, the redevelopment industry has received one more hard-hit blow on their face from the State Government due to the recent rise in cost of TDR linked to Ready Recknor Rates known as premium FSI, a move which shall almost paralyse the Developers who have undertaken redevelopment projects and are at the beginning stage of buying process of premium FSI from the State Government.
As we are all aware, the TDR plays an important role in the suburbs of Mumbai as it is most vital component for the Developers redeveloping the properties in suburbs because it doubles the built-up area over and above the usual Floor Space Index (FSI) permitted on the plot. Developers currently have the mandated option of buying 33% of premium TDR from the State Government at a cheaper rate than what the private sellers charge and the rest of 67% from open market to cater the loading need of 1 TDR over and above the 1 FSI of plot potential. However, the new rates are bound to change the equations. The Developers are now going to find it increasingly unaffordable.
In principle, a hike in TDR rates will lead to a corresponding hike in prices for future redevelopment launches. However, owing to the current demand and absorption trends which are showing a slowdown due to erosion of buying sentiments on account of high consumer inflation and flat prices, this upward revision of TDR is expected the Developers to be away from launching new projects in suburban Mumbai.
When a Developer takes up a redevelopment project in the suburbs, he can use 1 FSI i.e. plot FSI and load an extra FSI of 1 by buying TDR from the market. In 2008, the State Government decided to sell 33% of this TDR on their count as premium FSI so that the Developer's mercy on private players reduces. The State Government till date used to sell premium FSI i.e. TDR at 30% of the Property Ready Reckoner Rates of 2008, has now decided to fix the new premium rate at 60% of the Ready Reckoner Rates of 2015 estimating fresh increase in annual flow of around Rs. 7000 crore through this sale.
The Developers have expressed their utter dissent that the new rates will sabotage all redevelopment projects and make them financially unfeasible as the stamp duty to be paid on new purchases of TDR FSI, shall also be now more costly burdening the buyers. The Developers alleged that the Government's move will benefit a group of private players who deal in this premium FSI i.e. TDR FSI. The increased rates will particularly affect redevelopment projects the prime suburbs of western zone where Ready Reckoner rates are very high.
Dilip Shah
Senior Counselor and Analyst for Redevelopment of Housing Societies and Society Laws
www.redevelopmentofhousingsocieties.com &
www.redevelopmentofhousingsociety.com
