By Nayan Dedhia, MD – Toughcons Nirman Pvt. Ltd.
As Redevelopment Consultants, today we come across several proposals for redevelopment and Only 1 Proposal out of 50 Proposals seems Feasible for Redevelopment.
When we studied the reason behind it, it was observed that there were several reason why these proposals were not feasible. The major reason was Government / MCGM Share in Revenue:
-30%-40% charged by way of various premiums charged by MCGM/MHADA.
-2%-3% by way of stamp duty on DA & PAAA
-7-8% by way of GST due to GST charged on construction, professional fees & sales brokerage whose ITC benefits also not available.
-12% by way of Stamp Duty/ Registration & GST (without the benefit of ITC.) on sales 1% by way of LUC Tax and Miscellaneous Taxes.
As per above, government alone charging 50%-60% by way of Taxes & Premiums. Thus by charging such huge premiums / Taxes, the question comes to mind whether the Government really has an agenda to provide affordable housing and house for all by 2022. Thus out of 100% revenue, only 40-50% is left for society members, construction costs, professionals fees, sales & marketing costs, finance cost, etc.
Following are the revenues generated by the Government in the redevelopment project. Govt is charging approx 50%-60% and even after bearing the costs and completing the project if any profit remains, then it is also subject to further Income Tax. And without understanding this fact, the Society, Media, Housing Activists, Court etc. all blame only the Developers. Why such premiums/taxes/ charges are higher? Because BMC/Government wants revenue from Real Estate. BMC doesn’t want to compromise on revenue from Building Proposal. But who will explain to them, that due to the exorbitant pricing, if no proposals or fewer proposals come to them then how they will generate the required revenue in the first place? Is it possible that just by increasing premiums without any proposals, they will generate revenue?
Hence, there are few things that we would like to know is that;
a. Who is deciding the premiums at MCGM?
b. Do they take a case study of any project to analyse the various impacts these premiums make on various sizes and types of projects?
c. Do they check the feasibility of such various projects to understand what premiums should be charged?
If they do it, they will realise that majority of residential projects, despite allowing TDR Loading, plots falling on 9 meters or 12 meters road will be 20% to 40% costlier than their current market price. (For eg. If the market price is Rs.20,000/- per sq.ft. then the landing cost is approx. Rs. 24000/- to Rs. 28000/- per sq.ft.)
Since 2011, Fungible area was introduced in lieu of Balcony, Flower bed and elevation features. So this 35% fungible area of tenants’ area has to be added in their proposed carpet area and cannot be transferred or used in Sale Area thus making projects more unviable because of following issues of the plots described as follows:
Why these projects are not feasible?
There are various projects with different problems, few of them are as follows:
Prior to 2010, BMC used to allow 10% Balcony and free Otla, which later on society members included it in their carpet area. Due to this today, in any project already 13-15% more BUA is used in any residential project.
For the purpose of infrastructure development, MCGM has taken plot from the society and allowed them to construct it over and above the base FSI of 1 at that time. Due to such road setback FSI, today such plots’ FSI seems over consumed. As per existing policy, BMC does not allow additional FSI over and above existing FSI. MCGM says once benefit taken cannot be claimed again. But originally plot belonged to the society. So why can’t they take benefit again over and above the cap of new FSI, if they opt for redevelopment.
iii. Many projects fall near railway boundary, metro rail, highway, Nalla, funnel zone and such projects full FSI cannot be consumed and thus making it unviable.
iv. Several projects are smaller plots or odd in their shapes. Such project has various planning constraints and hence due to it, parking costs and BMC premiums increases compare to other plots. Thus making such projects un viable.
v. Various plots were developed earlier as per layout and hence BUA of such buildings is 30%-40% more than their existing plot area. In such layouts, common RG & internal roads were developed differently and the plot owner did not transfer its rights to the respective societies. Hence these projects also are not feasible today.
vi. As per new DCPR, Society plots falling on Road-width less than 6 meters are not allowed TDR, hence redevelopment is not possible for such type of buildings.
vii. In MHADA, plots which are more than 4000 sq.mtrs and falls on 18 meters road, they are compelled to share the area with MHADA, thus making it unviable.
viii. Also there are various societies on Collector Lands. If such societies opt to go for redevelopment they have to pay 10%-25% of land RRR for converting to freehold. Apart from above if there have been transfers by way of sale, then collector permission has to be taken and several costs are involved for the same.
ix. As per figures declared in assembly, 5800 PROJECTS ARE STALLED IN Mumbai. That means 7%-8% population of Mumbai are homeless. In such projects, Developers have invested a lot of funds in these projects.
Costs increased in due course due to the delay of work because of various reasons such as Stay by High Court for Dumping Ground, Introduction of GST, RERA, delay in Implementation of New DCPR, etc. Due to increased costs, if project has to be taken over from current scenario, then it is not feasible for any developer.
Govt has to come out with some special policy and bail out such projects.
x. For Paghadi Buildings, new DCPR has come with 33(7a), where tenants are to be offered minimum 300 sq.ft. area but that is within the FSI cap, hence such projects are also not feasible for Landowner due to less FSI for sale.
xi. There are many society buildings, where the old developer was supposed to hand over the flats to the ULC, but developer sold such flats in the open market. Today such society has to pay the compensation for it before opting conveyance and such costs add additional burden and thus these projects are unviable.
There are various such redevelopment projects which are not feasible due to additional costs as these plots falls on Lease Hold Land, MMRDA, Estate Properties, etc. There are many such type of projects where we have also not come across and they are not feasible.
Thus as per above, there are several projects which contribute approximately 50% of the society buildings. This is the scenario and still, the BMC says that it wants revenue. Revenue that will be generated at the cost of its citizens, whose buildings are vacated or getting dilapidated and project is not feasible as per the current market scenario.
GOVT / RERA/ COURT cannot hold only the developers responsible for this. They have to accept the fact that it is the Govt./MCGM costs that have increased drastically and have disturbed this industry rather than the over- trading or over-commitment by the developer. Demonetisation & RERA are the only excuses for the slow-down of the industry but what has affected the industry more is the increased Govt/MCGM Costs and since 2010, sudden change of several policies overnight. Adding to above woe, the media is also spreading the false scenario of huge inventory available unsold and hence prices will fall up to 50%. Due to such news, market sentiment is getting worse and Govt. is not taking any steps to correct it.
APPEAL TO THE GOVT / MCGM
Mumbai Redevelopment Real Estate Industry Does Not Require Any Package Or Tax Sops.
Only Required Is That Govt/MCGM Should Reduce Their Premiums / Taxes Drastically. Govt has to rethink on its premium / taxes and intervene immediately to take bold steps. If Premiums/Taxes Not Reduced Immediately, That Day Is Not Far When 50% Of The Population Living In Dilapidated Buildings Will Die Under Them Even Without Earthquake.