In cities like Mumbai, land is very scarce but the demand for housing is growing continuously. Moreover, some of the buildings in Mumbai and in other cities, have outlived their useful life and pose a risk to the lives of the residents. In order to cater to the increased demand for housing, with the added objective of replacing the old buildings, the government has been promoting and regulating the redevelopment of existing properties.
The redevelopment of old buildings has drastically changed the face of Mumbai, in the last 25 years. The traditional practice, is for redevelopment to be done through a developer, where the benefits of the additional floor space index (FSI) accruing to the building, do not pass on to the members of the society. Moreover, many buildings that went for redevelopment have been abandoned midway by the builders, leaving the original flat owners stranded.
In order to ensure that the flat owners get the benefits of increased FSI and to let them have their say in the redevelopment of the building, the cabinet of the government of Maharashtra, set up an expert committee on March 8, 2019, to examine the issue and give recommendations for self-redevelopment of buildings by the housing societies in the state of Maharashtra. A Government Resolution (GR) dated September 13, 2019, was issued, to implement the suggestions of the high-level committee.
See also: Maharashtra housing society bye-laws
What is self-redevelopment scheme of Mumbai
The Maharashtra Housing and Area Development Authority (MHADA) is the supervising authority for this scheme. Under this scheme, the MHADA is required to provide a single window system, for all the necessary permissions required for self-redevelopment of the housing society. This will ensure that the requisite permissions are given quicker than it would otherwise take. MHADA is also required to create a panel of architects, project management consultants and contractors, to provide choices to the housing society, to select the requisite professionals needed for self-redevelopment. For funding purpose, the Reserve Bank of India has now allowed societies to borrow from housing finance companies, apart from the Mumbai District Co-operative Bank. The RBI notification, which came in February 2021, will boost the prospects of the self-redevelopment scheme in Mumbai.
Difference between redevelopment and self-redevelopment
Traditionally, the housing society approaches a builder and enters into an agreement with it, for redevelopment of the building. The builder’s liability is to give the flats to the flat owners, as per the agreement and he is free to dispose of the additional flats to anyone, including the members, at negotiated prices. In case the redevelopment work is undertaken by the society itself, with the supervision of its members, it is known as self-redevelopment.
Eligibility criteria for self-redevelopment
Only registered cooperative housing societies of Maharashtra, are eligible to avail of the benefits offered under this GR. So, any residents’ welfare association, is not eligible to avail of the benefits of such self-redevelopment. This benefit is available only for buildings which have completed 30 years. The land on which the building is situated, may either be government land or private land. So, as long as the building of the society is older than 30 years, it does not make any difference as to who owns the land, for the purpose of self-redevelopment. In case the housing society owns more than one building of different ages, the society opt for self-redevelopment only for the building which has competed 30 years.
Single-window system for all approvals
Redevelopment of any property requires approval from many departments and government authorities, which can be very time-consuming. Some of the approvals are interlinked.
In order to avoid delays, arising as a result of the various departments handling the applications, the GR introduced a single-window system for making applications and granting of approvals. This will help reduce the time and cost for the redevelopment.
Time limit for approval and its execution
In order to avoid delays in granting of approvals and arm twisting by officials, the GR stipulates that approvals for applications for self-redevelopment, should be granted within six months from the date of submission of the application. Moreover, to qualify for the benefits available under the GR and for faster execution, the redevelopment of the building has to be completed within three years from the date of the approval.
Empanelment and appointment of contractors
The housing society has to appoint a contractor, for carrying out the redevelopment of the building, from a panel of contractors maintained by the approving authority. For empanelment, the contractors have to submit balance sheets for the last three years. This requirement will ensure that no fly-by-night contractor gets to carry out the work of redevelopment under this scheme. The contractor can be removed, if the committee constituted for monitoring the progress of the project reports undue delay by the contractor, in execution of the project. In such a situation, the contractor can also be black-listed, to make him ineligible for any other project. This requirement will work as a deterrent and ensure that the contractors are sincere, in the execution of the projects undertaken.
Finance and interest subsidy for construction loans taken
Any housing society that applies for construction loans under this GR, shall be entitled to an interest subsidy of 4%, which will reduce the cost of borrowing from 12.50% to 8.50%. In order to let the lender bank have say in the redevelopment, the loan agreement has to be a tripartite agreement between the housing society, the lender bank and the contractor, where the lender will be entitled to appoint a minimum of one member in the committee of three members. The other two members shall be appointed by the housing society.
Loan eligibility for the self-redevelopment scheme of Mumbai
For availing of a loan for self-redevelopment from the Bank, the housing society has to be situated in Mumbai suburban and is also required to have been registered, under the provisions of the Maharashtra Cooperative Societies Act, 1960. It should also be a member of the Bank, which the society can become, by purchasing shares of the Bank. So, buildings that are managed by ad-hoc flat owners’ associations without being registered as cooperative housing societies, will not be able to avail of the loan facility under this scheme. Moreover, to be eligible under the scheme the housing society should have paid all government dues, before it applies to the Bank for the loan. All the members should also have paid the maintenance charges of the society. Hence, the society will not be eligible for the loan, till the defaulting members pay all their arrears, up to date.
RBI allows housing finance companies to fund self-redevelopment projects
In a recent directive, the RBI has given permission to housing finance companies to finance self-redevelopment projects. Earlier, the RBI had restricted the banks from funding such projects, as they fall under the ‘commercial real estate’ category.
Procedure to avail loans under self-development scheme
The housing society has to obtain the written consent of 100 per cent of the members, to proceed with self-redevelopment and for mortgaging the property of the housing society to the Bank, for the purpose of availing of the loan. The society has to pass a resolution in the special general body meeting and forward the same to the deputy registrar of cooperative societies. The acknowledgement of the resolution, as submitted to the deputy registrar, has to be attached with the application form prescribed by the bank, along with other documents.
See also: Mumbaikars take up self-redevelopment of old apartments
These documents include copies of the registration certificate, updated byelaws of the society, audited financial statements for the last three years, list of committee members, etc. Additionally, the society will have to provide copies of documents evidencing ownership of the land and building, which include the conveyance deed in case conveyance has been done, land purchase agreement where land was purchased by the society, copy of property card, 7/12 extract and original plan of the building. The application form should be accompanied with a copy of the project report of the proposed redevelopment, along with a detailed budget and break-up of the cost of the project and copies of the approvals received from the authority authorised to grant such permissions.
The society will also have to furnish details of all the members, with their business address, address of their native places, Aadhaar card and PAN cards. It will also have to furnish the copies of income tax returns (ITRs) and salary slips in case of the members who are not filing their ITRs. Before approaching the bank for funding, the society has to appoint an architect, legal advisors, project management consultants, chartered accountants, etc., and furnish the copies of the agreements executed with them.
Loan amount and rate of interest for the self-redevelopment scheme of Mumbai
The maximum loan amount available under the self-redevelopment scheme 2018, is capped at Rs 50 crores by the Bank. The loan under this scheme is available for seven years, out of which two years is the moratorium period, during which no payment is required to be made to the Bank. For redevelopment projects where the cost is more than Rs 50 crores, the loan tenure shall be 10 years and the initial moratorium period will be three years.
However, as soon as the moratorium period is over, the accumulated interest has to be paid at once. Once the arrears of interest is paid, the bank will determine the amount of instalments to be paid, towards repayment of the loan. It may be noted that the loan can be repaid even before its original tenure and the Bank will not charge any prepayment penalty.
Presently, the bank charges interest at the rate of 12.50 per cent per annum for loans granted under this scheme. The society and its members have to contribute a minimum of 15 per cent of the project’s cost and the remaining 85 per cent, subject to a maximum of Rs 50 crores, shall be funded by the Bank. As a security, the society will have to execute an ‘English mortgage’, in respect of the property of the society with the Bank, including the building proposed to be constructed.
Stamp duty concession for self-redevelopment
For the existing flat owners of the housing society, there will be no stamp duty liability, with respect to the flats allotted to them in the new building. However, for the additional flats that are being made available to the existing members under the Pradhan Mantri Awas Yojana, the stamp duty shall be restricted to Rs 1,000 only, per flat. The cap on stamp duty will be applicable, even if the member is allotted higher area than what he held previously. With respect to the additional flats that are sold at open market price, the stamp duty will have to be paid as per the stamp duty reckoner rates.
Benefit of extra FSI, concession on premium and rebate on TDR
In case the redevelopment is undertaken by the housing society, the society shall be entitled to an extra FSI of 10%, over and above what it is entitled to under the development regulations of the area. Even for Transfer of Development rights (TDR), the charges would be 50% of the normal charges payable by the society. The society shall also be entitled to a discount, in the payment of various premiums for availing of the extra FSI.
Precautions while opting for self-redevelopment
As redevelopment of a building involves dealing with large sums of money and awarding contracts to various people, it is important for the members of the housing society to choose persons of integrity to be members of managing committee. There have been numerous instances of allegations of malpractices by the managing committee members, leading to delays in the completion of the project and cost escalations.
What is the step-by-step procedure for self-redevelopment?
Step 1: Obtain the permission from the society members
Getting the consent from the residents / members of the society is the first step. This could be done when the society convenes a Special General Body Meeting of all members and the local registrar’s representative will conduct the meeting. As per Section 79A of the Maharashtra Cooperative Societies Act, 1960, 51% of the apartment owners should agree for the reconstruction project and sign the acknowledgement. A copy of this acknowledgment has to be retained, for future use.
Step 2: Get the feasibility study done
Once the acknowledgement is signed by more than half of the total residents, society needs to hire an architect, who will develop a feasibility report, which should contain the existing building plan, floor space index, size of existing units, TDR, fungible FSI and total cost involved in the project’s execution. The report will also list the possibility of any additional development as a sale component. It will be divided into three categories – technical, financial and other benefits of self-redevelopment.
Step 3: Document verification
To go ahead with the self-redevelopment, the society must have a conveyance deed in its name. If the land is owned by the state authority or the Maharashtra Housing and Area Development Authority (MHADA), then, a no-objection certificate has to be obtained from the owner.
Other requisite documents:
- Chain and Triangle Survey (CTS) plan
- 7/12 extract
- Development plan
- Registration certificate
- List of committee members
- List of amenities approved
- Setback area details
- Plot area measurements
- Approved plans for redevelopment
- Occupancy certificate
- Audited financial statements for at least last three years
- Details of all society members, including their unit sizes as per the actual plan
Step 4: Bring experts on-board
You would need to hire a team of experts, such as a chartered accountant and a legal advisor. You may need to maintain accounts, income tax and GST returns. A legal advisor will help you in compliances and RERA registration. You may also need to hire a contractor, who will take care of the construction. You will also need an architect, who will help you finalise the budget as well.
Step 5: Get approvals
The Maharashtra government has started a single-window clearance system, for self-redevelopment projects. There are almost 55-60 clearances required for such projects, including NOCs from coastal regulation zone, traffic, fire, defence, aviation and other authorities.
Step 6: Get the funds
The society can procure a loan from the any housing finance company/bank for the redevelopment project. For this, details of all society members, including Aadhaar card and PAN card have to be submitted to the bank. Along with this, agreements executed with architects, legal advisors and all other experts hired for the redevelopment project, will have to be submitted to the bank. There should be no pending dues under the name of society or any outstanding maintenance charges from the residents. Currently, the loan amount that can be sanctioned to societies under the self-redevelopment scheme, is capped at Rs 50 crores for seven years.
Step 7: Temporary arrangements
Once the funds are disbursed, you can start the construction work. However, temporary arrangements for the stay of the residents have to be made, until the project is complete. Once the architect gets the building plan sanctioned from the municipal corporation, the society has to pay the premium fee. The legal advisor will get the project registered under RERA, if new sale units are being added in the project.
FAQs
What is the procedure of self-redevelopment?
When the redevelopment work is undertaken by the society itself, with the supervision of its members, it is known as self-redevelopment. This benefit is available only for buildings that have completed 30 years. The land on which the building is situated, may either be government land or private land.
Is PMC a must for redevelopment?
The housing society has to appoint a contractor, for carrying out the redevelopment of the building, from a panel of contractors maintained by the approving authority.
What is the FSI in Mumbai for redevelopment?
In case the redevelopment is undertaken by the housing society, the society shall be entitled to an extra FSI of 10%, over and above what it is entitled to under the development regulations of the area.
(The author is a tax and investment expert with over 35 years’ experience)
(With inputs from Surbhi Gupta)
Balwant Jain is a tax and investment expert. He is a rank holder CA, CS of 1983 batch and a Certified Financial Planner (CFP). He has varied experience in providing his own consultancy, as well as working as the chief financial officer, as well as a company secretary. He has been regularly contributing articles to leading business and mainline dailies, as well as electronic media. He regularly appears on business channels like Zee Business and CNBC Awaaz, as a personal finance and taxation expert. He has also been a visiting faculty of NMIMS (Narsee Monjee Institute of Management Studies), Mumbai. He also regularly conducts workshops on various subjects of investments and taxation.
Twitter: https://twitter.com/Jainbalwant
Email: [email protected]
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