With buildings in Mumbai ageing and in order to accommodate the increased demand of residential units, the government of Maharashtra has been giving higher floor space index (FSI). Consequently, the residents of many old and not so old buildings have been opting for redevelopment of their existing buildings. The traditional way to redevelop a building, has been to hand it over to a builder. However, many property owners remain hesitant to adopt this method, due to the nightmarish experience faced by many societies and inordinate delays in completing the redevelopment project in the agreed time period. Hence, in order to allow cooperative housing societies to undertake redevelopment of their building themselves, the government of Maharashtra has launched the self-redevelopment scheme 2018 on January 9, 2018.
Basics of the 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. The Mumbai District Central Cooperative Bank (the Bank) will provide the loan for self-redevelopment of the buildings of 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.
Procedure to avail of loans under the self-redevelopment scheme of Mumbai
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.
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.
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.
(The author is a tax and investment expert with over 35 years’ experience)