New homes for old ones
A sluggish market has turned the focus back on redevelopment
May 25, 2013
Source : The Indian Expres

 

MUMBAI: A sluggish market has turned the focus back on redevelopment. In Mumbai, housing societies are being wooed into such projects by the very developers who built those homes decades ago, but still retain the conveyance deeds for those plots of land

The real estate market is currently awash with various payment schemes, gimmicks and value-added propositions to get inventories moving. Away from all that, however, some developers have found a way to make good profits without having to make substantial investments. This is a trend being witnessed in Mumbai and its suburbs and it is a matter of time before other markets catch up. That route is redevelopment.

How it began

During the 90s, the Mumbai skyline was changing. Several new developments came up. They are now 20 years old. If structures built before are included, the total will add up to several thousand buildings.

Housing societies have been formed and registered after occupants moved into these buildings. The one crucial document that should be in the possession of these societies has not yet been given: conveyance deed to the property. This means, the land on which the society stands is still owned by the developer, which makes him the landlord.

The housing society merely owns the building structure and not the land beneath or around that structure. Spaces around the structure can take many forms such as parking lots, gardens, recreational areas, open spaces and even golf courses as well.

"About a decade ago, several small-time developers began demolishing these open spaces and started building other structures. Several housing societies opposed this and went to court. However, since the conveyance remained with the developer, nothing much was achieved through legal battle. There are still hundreds of cases pending in various courts on the same issue," says M Shefali, an advocate, citing a recent case of one such housing society in a western suburb of the city that is still pending in court.

During the boom years from 2004 to 2009, developers focused on new projects and not much happened in the redevelopment space. Over the last four years, the sluggish market post the 2008 global crisis has turned the spotlight on this activity.This time, however, developers are avoiding acrimony and bitter legal battles. They are approaching housing societies with proposals to redevelop the same project built earlier. This time, the approach is professional and based on mutual understanding and legal arrangements.

The Model

"A developer in Borivali developed a residential complex of six buildings in 1990 at the prevailing FSI (floor space index) regime. He created a garden, a parking lot, etc. in the complex then. The flats were sold at the prevailing market rate and possessions were given. The society was formed by the new flat owners in due course. However, conveyance has not been given till date. The original developer has now approached us with redevelopment carrot," says Umesh Shah, the secretary of a housing society.

After 20 years of moving into a house, the residents of any society would want three things: larger space, a better and safer building, and better amenities. Members of many housing societies who wish to redevelop are restrained mainly on account of the cost factor, and the lack of trust in any developer.

"The original developer has a better chance here. Usually the society members (flat owners) were the original buyers. Their trust level is usually very high with their developer since he built for them their dream house. This trust exists even after decades. Developers are using this factor now," says ND Mehta, a property consultant who is advising one such project in Ghatkopar, a central suburb of Mumbai.

The original developer has entered the scene as a redeveloper. However, this time he makes an agreement with the society as one entity instead of individual home seekers, when he sold the flats the first time.

The Makeover

The focus of the developer would be to exploit open spaces within his original plot as he is the landlord. He would use provisions of new FSI regime to create more built-up spaces.

"Our four buildings will be replaced with two towers with multi-level podium parking or basement parking. Since the original open parking lot is shifted, the developer gets larger land to exploit for his benefit," says Bharat Chande, a committee member of a society in Wadala, in central Mumbai.

 

After rehabilitating the residents of his old building in the new towers, the developer, who is now the redeveloper — would also be able to sell a few floors or a wing in order to recover his expenses and make good profits.

"Had he given the conveyance to the society, he would not be in position to rip off profits from the same plot twice. Otherwise, our society with the conveyance would have been the beneficiary of such additional privileges," adds Chande.

Since the original developer owns the land, the capital investment at this stage is insignificant for him. In order to avoid further investment, some developers who may not have the resources to carry out this exercise are now joining hands with bigger and reputed developers who bring with them superior construction technology and have the resources towards expenses such as rents for existing occupants, corpus funds etc.

"This joint venture gives a much needed stability to the project and also enhances the trust and reliability quotient," says Lalit Sanghvi, a small-time developer who has tied up with a bigger banner for his building at Girgaum in south Mumbai.

The Benefits

This is a faster process than a fresh development on two counts. One, the approval procedure is not as time-consuming or complicated and second, the cost involved for the developer is very low as compared to a new development.

Existing occupants get benefits such as stronger and safer buildings, extra space, modern amenities, besides a corpus fund for the society, rent for the stipulated period for alternative residence, shifting and other charges along with stamp duty and registration costs. Besides, projects get completed faster.

"This time, flat owners as the members of the society can collectively demand the conveyance of the plot in the name of the society. Even the developer now would not mind since there would be nothing left to develop or gain from this plot or project anymore once this redevelopment is completed. However he might charge for the same in the range of Rs 500 to 700 per sq ft," adds Mehta.

"Besides some flats to sell in the open market, the developer has some other benefits as well. Though this kind of project may not generate huge profits but in a present slow moving market, getting and completing a redevelopment project would get him better reputation and fetch him quicker financial support for other projects as well. This kind of smaller but continuous profit inflows would help him sustain for a longer period in difficult times," says Shah.

This model has another benefit for home aspirants as well. Like any other redevelopment project, this will also generate more flats which would come in open market. The home seekers would be able to select from various localities and price ranges. It seems like a win-win situation for all.

A word of caution

In order to get the benefits of redevelopment, the society may lose open and green spaces. A jogging track may be lost for superior fittings, or a garden for a bigger parking lot.

"If a society wishes to maintain all the green and open spaces and yet wants the benefits of the redevelopment then it can go ahead on its own. It does not need an outsider," says Sampat, an advocate and a housing activist.

However, conveyance is a necessity for redevelopment on one's own. If the original developer or present land-owner agrees to do conveyance at a reasonable price, the society should get it done at once even it does not plan any redevelopment at that point.

"If the land-owner does not agree or demands unreasonable amounts, the society can approach the state government for the recently launched option of 'Deemed Conveyance' and with that the society can proceed for the redevelopment on its own without sharing its profits with anyone. However, one must consult professionals and experts on this," says Sampat.

There could be many reasons for the conveyance not being handed over to the housing society. The blame could be on either side depending on each case.

However, the fact remains that had the housing society persuaded and managed to get the conveyance from their original developer earlier, it would have been enjoying the fruits of this game today.

 

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