Transferable Development Rights: What is TDR in real estate?

Transferable Development Rights (TDR) have emerged as a crucial tool in real estate, enabling conservation amid urbanisation. This strategic approach controls urban expansion while preserving green spaces and historical sites. The TDR plays a pivotal role in metropolitan areas where the demand for space is constantly rising. Its impact on city planning is profound, transforming how urban spaces are conceived and developed. This article provides the meaning, significance and types of TDR in real estate.

See also: What is net absorption in commercial real estate markets?

 

What is TDR in real estate?

Transferable Development Rights (TDR) is a zoning technique for permanently safeguarding parcels of land with conservation value. These areas encompass natural resources, farmlands, cultural sites and communal open spaces. Through TDR, the government ensures the protection of these lands, redirecting development to areas requiring growth. In real estate construction, TDR involves exchanging development rights of locations to facilitate greater construction. Landowners can utilise or transfer surplus built-up space for a stipulated amount, balancing the development and preservation of open spaces. This strategic approach enables responsible urban growth while conserving valuable lands.

 

What is a TDR certificate?

A TDR certificate is an official document issued by the Municipal Corporation for property owners. This certificate signifies that a portion of their land has been allocated for public amenities, such as parks, roads and schools. In return for this allocation, property owners gain development rights that can be utilised elsewhere or traded with a third party for financial consideration. The TDR certificate plays a vital role in urban planning, contributing to the establishment of public infrastructure and facilitating efficient land use. It provides owners with compensation and incentives, making it an integral component of responsible and strategic urban development.

 

How does TDR work in real estate?

Taking Mumbai as a case study, neighbourhoods like Juhu, Colaba and Bandra stand out for their significant growth, coupled with high population density. In contrast, areas like Mira Road in Northern Mumbai, while not as developed, lack notable public amenities and have lower real estate values.

To optimise available land space, the TDR is transferred from developed regions to those with growth potential. Established areas with amenities can share these advantages with developing regions, fostering a balanced population distribution. As underdeveloped regions experience growth and efficient use of existing land resources, they gain public recognition and attention.

 

TDR in real estate: Types

In real estate, there are three types of TDR, each serving a specific role in urban planning:

Reserved Plots TDR

Landowners contributing their properties to the municipal corporation for public use receive a Development Right Certificate (DRC). The DRC is determined as follows:

Gross area of the plot’s ceded land X Floor Space Index (FSI) permitted in the zone

Slum TDR

Under the Slum Rehabilitation Project (SRP), individuals in slum areas receive rehabilitation Built-Up Areas (BUAs). Owners, developers or societies can use or sell the surplus space, following a specified ratio based on the total rehab and sale area.

Heritage TDR

Owners of historic structures facing development restrictions from historical committees receive TDR as compensation. Upon state government’s approval, this TDR can be utilised in the same ward, even in a suburban region or an island city. This mechanism preserves heritage while allowing controlled development.

 

TDR: Benefits

TDR offers numerous benefits to various stakeholders, contributing to urban landscape enhancement and responsible land usage:

• Infrastructure development: Critical public infrastructure, such as roads, schools, parks and playgrounds, is constructed with TDR, fostering planned urban development.

• Effective land use: TDR facilitates the development of unoccupied or underused properties, promoting efficient land use and controlling urban sprawl.

• Increased Floor Space Index (FSI): Developers benefit from TDR by being allowed to build beyond the FSI law permit, enhancing property value and return on investment.

• Sustainable urban planning: TDR supports mixed-use projects, reduces traffic congestion and creates walkable neighbourhoods, resulting in sustainable urban planning.

• Financial gains: Developers can expand in specific areas while generating income by selling development rights, showcasing TDR’s financial flexibility.

• Compensation for landowners: Property owners receive financial rewards for protecting their land and promoting responsible land usage.

• Environmental and public health advantages: TDR promotes land conservation, resulting in reduced floods, cleaner water and improved public health, offering diverse housing alternatives.

• Efficient resource allocation: Real estate developments using TDR enhance limited funds for conservation through private investment, ensuring the conservation of crucial lands.

• Variety and flexibility: TDR is a versatile tool applicable in various land preservation and growth management scenarios, allowing diverse residential and non-residential developments.

• Private financing utilisation: TDR leverages private investment in real estate projects to alleviate the government’s financial burden, providing a sustainable conservation strategy.

 

TDR in real estate: Drawbacks

In theory, it seemed to be a promising tool for urban development by contributing to suburban growth. However, many property developers exploited it to maximize sellable space in premium areas. Consequently, excessive construction ensued, leading to congestion, unplanned expansion, and strain on infrastructure in the suburbs.

Moreover, the TDR concept faces criticism for inflating real estate prices. Developers incorporate TDR Acquisition Costs into the project expenses, resulting in higher final prices. There is a need for government oversight to gauge the extent of this impact and implement measures to curb it.

 

TDR in real estate: Purpose

In addition to its role in preserving the natural environment, TDR is granted by local government bodies when engaging in public interest activities. These include:

• Road widening: TDR may be awarded for initiatives aimed at widening roads to improve urban infrastructure.

• Construction of parks or playgrounds: TDR supports the creation of public spaces, such as playgrounds or parks, contributing to community well-being.

• Construction of hospitals or schools: Initiatives to build educational institutions or healthcare facilities can be incentivised with TDR.

• Safeguarding heritage sites: TDR is provided to protect and preserve heritage sites of cultural significance.

Individuals surrendering their land or plots for such public interest activities are legally entitled to receive financial compensation. In contemporary scenarios, landowners often opt to sell portions of their land to real estate developers or builders in exchange for fair value. The prevalence of TDR is notable in densely populated cities like Delhi, Kolkata, Mumbai, Bangalore and other rapidly developing cities.

 

How is TDR calculated?

TDR empowers developers to acquire additional construction rights from specific designated regions and apply them to different properties. TDR computation is subject to local laws, which can vary between regions. It is obtained by relinquishing property to the government or fulfilling specific land development criteria. The square footage or Floor Space Index (FSI) used in determining the transferable value may be utilised in other projects. It is advisable to seek guidance from local authorities and planning agencies to comprehend the FSI and TDR guidelines and calculations. These estimates adhere to local rules and regulations, exhibiting variations based on the area and project type.

 

TDR markets

Cities such as Mumbai host substantial Transferable Development Rights (TDR) markets, akin to stock markets. Many developers purchase these certificates, as they can be traded for cash, thereby expanding their permissible development rights. TDR trading operates on the open market principle, where pricing is solely determined by supply, demand, and availability without government intervention. The average person often lacks awareness of the processes involved in acquiring, trading, or exchanging TDR.

 

FAQs

What does TDR stand for?

TDR stands for Transferable Development Rights.

Can you provide an example of TDR in practice?

Cities are categorised into different development zones, such as poorly developed, moderately developed and fully developed. Transferable development rights move from fully developed zones to others. For instance, in Mumbai, TDR generated in the southern part of the island city can be utilised for development in the northern suburban districts. This accelerates the development of less-developed areas.

How is TDR calculated in construction?

To calculate TDR in construction, a Development Right Certificate (DRC) is issued. This certificate contains FSI credit, calculated by multiplying the gross area of the relinquished plot by the permitted FSI zone.

What is the working principle of TDR in construction?

TDR in construction is a method that separates a parcel of land’s development potential, allowing its usage elsewhere within established city zones. This mechanism enables property owners to transfer development rights to a specific property, often to a third party.

How is TDR traded?

Cities like Mumbai have an active TDR market akin to the stock market. Developers buy these certificates as they can be exchanged for cash in the market, expanding their permissible development rights.

What are the benefits of TDR in real estate?

TDR offers financial rewards to landowners who choose to formally relinquish partial development rights under municipal zoning.

What does TDR signify in land transactions?

TDR allows landowners to acquire additional built-up areas by surrendering a portion of their land. This extra space can be used or sold to others for financial gain.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com