Redevelopment of Old buildings and societies in Mumbai seems a far dream. Where 19 thousand off cess building waiting for their turn, BDD Chawl and Old Pugree Buildings are desperate for redevelopment, society redevelopment seems non viable proposition. Many societies are think to go for Self Redevelopment, though it is not easy task but there is no other choice. The biggest reason for financial non viability is whopping high taxation. Let us observe what type of taxation needs to be considered before starting a redevelopment project.
The major reason was Government / MCGM Share in Revenue: a. 30%-40% charged by way of various PREMIUMS charged by MCGM/MHADA and SRA. b. 2%-3% by way of stamp duty on Development Agreement & PAAA c. 7-8% by way of GST due to GST charged on construction, professional fees & sales brokerage whose ITC benefit also not available. d. 5% by way of Stamp Duty/ Registration & GST (without benefit of ITC.) on sales e. 1% by way of LUC Tax and Miscellaneous Taxes.
As per above, GOVT. ALONE IS CHARGING 50%-60% by way of Taxes & Premiums. Thus by charging such huge premiums / Taxes, the question comes to mind whether Govt really serious to redevelop Mumbai?
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 Govt. in 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.
WHY SUCH PREMIUMS / TAXES / CHARGES ARE HIGHER..?
Because BMC / Govt wants revenue from Real Estate. BMC don’t want to compromise on revenue from Building Proposal.
But who will explain them, that due to the exorbitant pricing, if NO PROPOSALS or LESS 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 CASE STUDY OF ANY PROJECT to analyse the various impacts these premiums make on various sizes and types of projects.
c. DO THEY CHECK 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 mtrs or 12 mtrs 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 nonviable because of following issues of the plots described as follows:
There are various projects with different problems, few of them are as follows:
i. 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.
ii. 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 falls near railway boundary, metro rail, highway, nalla, funnel zone and such projects full FSI cannot be consumed and thus making it nonviable.
iv. Several projects are smaller plots or odd in their shapes. Such project have various planning constraints and hence due to it, parking costs and BMC premiums increases compare to other plots. Thus making such projects nonviable.
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 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 mtrs 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 mtrs road they are compelled to share area with MHADA, thus making it nonviable.
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 free hold. Apart from above if there has 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 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 Pugree 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 were supposed to hand over the flats to the ULC, but developer sold such flats in 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 nonviable.
xii. 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.
THUS AS PER ABOVE, THERE ARE SEVERAL PROJECTS WHICH CONTRIBUTES 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 are not feasible as per 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.