DILIP SHAH (Senior Counselor and Analyst for Redevelopment of Housing Societies) 28 February 2012

In redevelopment of housing societies and new dc rules

IN REDEVELOPMENT OF HOUSING SOCIETIES ARE NEW DC RULES AND READY RECKNOR RATES CURATIVE?

New rules under DCR introduced by the Maharashtra Govt. may make your home dream more unreal. The Developers will burden the flat buyers with additional cost as they have to pay premium for Free of Floor Space Index Area. The Maharashtra Govt., in a bid to provide level playing field to Developers and reduce arbitrary decision-making, has amended the Development Control Regulations (DCRs) for the State Capital City.

According to the DCR Amendments, Balconies, Flower Beds, Terraces, Voids and Niches would be counted in the Floor Space Index (FSI). To compensate for the loss of these Free of FSI areas, the fungible FSI to the extent of 35% for Residential Development and 20% for Industrial and Commercial Developments has been allowed with payment of premium. Fungible FSI would be available at 60% premium for Residential, 80 % for Industrial and 100% for Commercial at the Ready Recknor (RR) Rates.

The Fungible FSI can be used for making Flower-Beds or Voids; else used for constructing bigger habitable areas. The move is aimed at curbing the misuse of ‘Free of FSI’ and mobilizing much-needed revenue for infrastructure development of the city. The change in law will also pave the way for development of more than 19,000 old and dilapidated buildings in the metro. The government believes the country’s Private-Sector Firms and Multinational Companies would invest in the redevelopment projects.

It was from this January 1^st, 2012 that the Government revised Ready Recknor Rates ranging with an increase between 5% and 30% in 716 zones of Mumbai. The Government believes that this is expected to shake up the Realty Sector, and bring in an element of certainty among the investors by cutting down the property prices.

The Developer keeps his share and the mafia and those seeking bribes get theirs. Now, the Government and the Weaker Sections of Society want their pound of flesh too. Who suffers? Ultimately, the home buyer will have to. The slew of changes and amendments introduced by the State Government will result in an increase of at least 20% in Real Estate prices, making the already-unaffordable homes costlier for buyers.

The Government’s directive of giving 20% of apartments in all big projects for distribution to the Weaker Sections of Society at Construction Cost will push Developers to recover their margins from buyers of the remaining 80% homes. The fresh 60% premium on extra FSI will also further jack up the price of every square foot of space. The FSI premium alone will contribute to at least a 10% hike in prices. Any additional cost imposed on the Builder will be passed on to the buyers. Besides the directives on reservation and FSI premium, a host of Government levies and Municipal Charges have also been hiked under the new DCR (Development Control Rules).

For instance, there are two Development Charges levied on new projects i.e. on Land Development and the other on Built-Up Area. While the Land Development Charge has increased by 500% i.e. from Rs.100/- per sq.ft to Rs.500/- per sq.ft, the Built-Up Development Charge has shot up six-fold — from Rs.250/- per sq.ft to at least Rs.1,500/- per sq.ft after being linked to the Ready Reckoner Rates.

Then there is the brand new Development Cess of Rs.5,000/- per sq. metres under sections 33(7) and 33(9) which contributes to an increase of Rs.450/- for every square foot. It may take time for Developers to pass on the incremental cost to home buyers given the tight market condition; it is a matter of time before prices go up by at least 20% because of the increased pressure on costs.

Meanwhile, the Maharashtra Chamber of Housing Industry (MCHI), the representative body of Developers in the city, maintained a politically-correct stance stating that the amendments to the DCR of Mumbai are a step in the right direction and added that the Chief Minister’s initiative will be in the best interests of the property buyers in Mumbai.

It is evident that with an eye on the forthcoming Municipal Elections, the State Government has announced these amendments to the (DCR), claiming that it will benefit home buyers in the city. The Government has reduced the rates of premium on the Floor Space Index (FSI) to 60% of the Ready Reckoner from the proposed 100%.

The Government thinks this would help to bring greater transparency in the Realty Sector as it will reduce arbitrary and discretionary decision-making. The Government thinks this would not lead to the rise of the prices of properties, but will, in fact, bring transparency in the system. The amendments were brought after Planning Authorities realised that Builders were found to be violating the free FSI, in some cases, up to 200%.

According to the 2012 Ready Recknor Rates, the average land price for Mumbai city is Rs 4,700 sq ft; therefore the fungible FSI for the Residential Development shall be available at the Rs 2800 per sq ft, Rs 3770 per sq ft for Industrial and Rs 4700 sq ft for Commercial use. Previously, the average premium charges were at the rate 25% of the Ready Recknor Rate. Due to the slack down in the real estate market the Builders cannot effort to increase the prices but they shall have to comprise in the Profit Margin.

Moreover, parking would be available as per the provisions of the DCR, but 25 per cent more at the option of the Developer. This would be without premium and without being counted in the FSI. Open space requirement for development of small plots under DCR 33(7) (Redevelopment of Cessed Buildings) has been relaxed.

The requirement under the new rules would be only 1.5 mtrs open space on all sides of plots measuring 600 sq mtrs or less. This relaxation would also be available for small plot development under 33 (10). Developers from South and Central Mumbai had strongly opposed the proposal, claiming that it would be impossible for the development of the smaller plots.

The new DCR has given a relief to realty players, as it has relaxed the requirement of 2 staircases for buildings above 24 metres for building of height up to 70 metres and in case of the floor plate of buildings was less than 500 metres. The reduction of floor height in residential flats and shops from 4.2 metres to 3.9 metres would eliminate the need to inspect illegal mezzanine floors.

FSI CALCULATION UNDER NEW DCR IN MUMBAI

(COMPARISON AMONG REGULATIONS FOR REDEVELOPMENT IN

CITY, MHADA, SLUMS & SUBURBS) (IN BRIEF)

F.S.I. In non CRZ area	3 to 4	250	3 to 4	1 plus additional 1 by purchasing for TDR purchasing of TDR
F.S.I. In CRZ area	2.50	2.50	2.50	1, No TDR loading allowed
Open Space requirement for buildings with height upto 24 mtr.	Fixed at 3.00 mtr.	Fixed at 3.60 mtr.	Fixed at 1.50 mtr.	Variable from 4.50 to 8.00 mtr.
Open Space requirement for buildings with height more than 24 mtr.	6.00 mtr.	6.00 mtr.	6.00 mtr.	9.00 mtr.
Parking floors that can be constructed	1 to 10	1 to 10	1 to 10	1 or at the most 2
Premium to be paid for Open Space Deficiency	NIL	NIL	NIL	Substantial, based on Ready Reckoner Rate
Premium based on Ready Reckoner Rate to be paid for Flowerbeds and Dry yards, Balconies, etc.	Waived for rehab portion.	Waived for Rehab Portion.	Waived for rehab portion.	Not Waived even for rehab portion.