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Why developers are suddenly saying Redevelopment projects are not viable now..?

Redevelopment business was most lucrative business till 2010. Every developer wanted new projects and was huge competition to bag the project. But suddenly?


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Redevelopment business was most lucrative business till 2010. Every developer wanted new projects and was huge competition to bag the project. But suddenly in past 2-3 years majority of projects are stalled or running behind schedule time. What has happened suddenly that all developers are crying about un viability?


Apart from Demonetisation, GST & Introduction of RERA, major reason for financially not viable is increase in MCGM charges and premiums. Since 2012, there have been vast changes in DCR and Government policies.


Rise in MCGM premiums & Rigorous changes in policies:


Prior to 2012, roughly the premiums and costs payable to MCGM were hardly 5-7% of project cost and nowadays it has zoomed up to 40% of the project cost. The increase in cost has not come up suddenly but has increased periodically. Increase in costs are such as Fungible premium, increase in ready reckoner rates effected all Mcgm premiums, open space deficiency premium, FSI to be purchased from MCGM, TDR rates, Stamp Duty on Development agreement, etc. apart from these, various restriction in planning required more concessions and more concession figures out to more costs. Due to all these costs in recent years, after bagging the project, developers realised that now project is not feasible and many projects have not started or stalled in between.


Developer’s Unawareness:


Now the question arises that didn’t the developer knew about all these before taking up the project..?


There can be various reasons to Above question. Few developers thought let’s bag the project first and then revise the offer with the society. But in majority of the cases, the developers were not knowing the effect of change in policies due to inadequate knowledge provided by the MCGM or their professionals. Also the developers calculated lump sum on older MCGM premiums and bagged the project as per demands made by the society.

But after bagging the project and finalising Development Agreement, started preparing plans for approval. At that time developers realised the effect of policies which increased the project costs and resulted that the project is unviable now.


Even worst scenario:


In few cases the scenario is more worst. Usually developers take Approval in stages from the amount of sale proceedings. Developers don’t invests from their pocket or take loan for MCGM premiums and TDR. They start the work with Zero plinth IOD, then take 1 FSI approval, then pay for MCGM 0.5 FSI, then load TDR & in the end Fungible Premium. All these premiums are paid stage-wise from the sale proceedings. If sale does not happen, the work stops and at that time developers realise that MCGM costs has shoot up against their assumed cost taken in Feasibility Report.



 

Summary

Once the construction work started, due to increase in MCGM premiums, Developer could not revise the offer of the society, they have no other option but to increase the price. Increase in price reduce the demand in market. Then due to demonetisation, GST, RERA and High Court order stay due to Dumping Ground, the market sentiment went down and once there was a time that there were no sales at all. Thus no sales resulted no cash flow for developer and final outcome was that the construction work stopped.


There are various several factors apart from above which together resulted delay in projects and currently the projects are getting un viable or developer cannot offer which they were able to offer earlier.


Thus if the building is getting older and dilapidated, where no developer are approaching for redevelopment or society have no trust in developer, the society can go for Self Redevelopment with funding from Bank.


Mumbai Bank is offering such loan to the co-operative housing societies who are in need of redevelopment. Toughcons Nirman Pvt Ltd is empaneled with Mumbai Bank for self redevelopment and has one stop solution with a team of professionals such as Architects, Engineers, Designers, Chartered Accountants, etc which will help your Society to complete your redevelopment project successfully within scheduled time period.


Feel free to call on +91 22-29270088 for further details.


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