Rising TDR Rates Put Redevelopment Projects in Jeopardy
Mumbai has seen a sudden hike in transfer of development rights (TDR) rates from Rs. 2,500 to Rs. 4,000 per sq.ft in the last two months. As a result, redevelopment projects in Mumbai suburbs may get jeapordized. The increase in TDR rates has forced several builders to renegotiate deals with housing societies. Some other builders are forced to put the deals on a back burner.
What is TDR
The Maharashtra state government had introduced the transfer of development rights (TDR) in 1991 in order to decongest the island city of Mumbai. According to the policy, people whose houses were marked for public amenities such as playgrounds or road widening could surrender it and obtain an equal amount of space in the suburbs. The government also introduced the slum TDR in 1997. Developers who redevelop slums for free receive this TDR. The TDR can be used in suburbs north to the slum.
TDR is important to the developers who are redeveloping suburban properties. This doubles the built-up area available to the developer above the usual FSI (floor space index) permitted on the plot. However, developers who want to buy it from the market are finding it increasingly unaffordable to increase in rates.
Present situation
In the present situation, the available TDR stock in the market is just about 10 lakh sq.ft. But the annual demand for TDR plots is approximately 70 lakh sq.ft. Most of the TDR stock is held by few developers who are major slum redevelopers. These developers redevelop slums for free and get compensated through TDR. They either use it for their own development purposes in the northern areas or sell it to another developer.
The TDR rates are on continuous rise for the last three months. The recent hike was from Rs. 2,500 to Rs. 4,000 per sq.ft and it is expected to go up to Rs. 5,000 per sq.ft in the next month due to lack of TDR being generated by slum projects. As a consequence, this may hurt redevelopment of societies as it will become unaffordable and unviable.
One developer has said that its slum redevelopment project in Mahul will generate over 1 crore sq.ft of TDR. However, HPCL has objected to this as the project is close to its refinery.
Government’s intervention
In Mumbai, a handful of developers and traders have monopoly on the TDR market. The state had issued an ordinance two years ago in order to break this monopoly. It had said that 33% of the required TDR could be bought by developers from the government at a rate cheaper than what is available in market. While this was a good move by the government, the remaining 67% controlled by the few developers is what has led to heartburn among remaining developers across Mumbai. The Maharashtra Chamber of Housing Industry (MCHI) has urged the Maharashtra government to increase its cap from 33% to 67%.
The government’s TDR rate is fixed and is between Rs. 1,500 to Rs. 2,500 per sq.ft based on the ready reckoner rate of the area.
