Redevelopment of residential buildings has caught on in Mumbai in recent years. Several projects have been taken up where either individual societies or the local authorities have gone in for such redevelopment, ostensibly to improve urban living. But there are some issues which, ideally, should be addressed and taken care of to ensure that this process is orderly and not haphazard, which is a risk associated with such schemes.
First, it is necessary to get a feel for what redevelopment is all about. Normally, there is a rule that once a building is over 30 years old, such redevelopment can be undertaken. If not, a structural audit is required periodically to certify that the structure is sturdy and safe. Even if it is less than 30 years old, redevelopment can be considered if specific conditions relating to structural issues are met.
Redevelopment Process Explained
Typically, the owners, represented by the society, will call for bids after a majority approve the concept. Various developers put in bids covering issues such as how much extra area will be given, the amenities to be provided, the time to be taken for completion, the monetary compensation to be provided for the interim period, and any lump-sum amount to be given to the owners, among others. The best bid, theoretically, is accepted, and the project commences. Often, a bank guarantee is insisted upon to ensure that the owners receive what they are promised during the period.
When the project is undertaken by a government authority, which could be the owner of the land, the project is often extended to a cluster concept where several buildings in the area are all part of the deal. Hence, instead of individual buildings, the authority can undertake redevelopment for, say, 30 buildings along with the roads and open spaces, as technically the land is leased to the owners. This can create a new township. Say, a cluster of 30 buildings with seven storeys and 28 flats each can get converted into 30-storey buildings with 180 or more flats each, depending on the FSI that is permitted.
This is considered to be a win-win situation, as the local authority can monetise the asset, which is land, and take lease rent again; owners get bigger dwellings with modern amenities; and the developer sells the balance of the flats at market rates and reaps high profits.
Concerns For Homeowners
Are there any misgivings here? From the point of view of owners, there are several concerns. The first is the issue of what the right additional area that should be given is. There are no standards and, invariably, there is a lot of bargaining. Second, in the new structure, not everyone can get the same floor or view, as the developer would like to keep the best-located units for commercial sale. Third, an important question is: what if the builder runs into problems, becomes bankrupt and cannot complete the project? Or if there is a time overrun due to litigation? Fourth, if there is a time overrun and the monthly rent to be paid by the builder stops due to financial constraints, where does one go?
Fifth, what if the amount to be paid as rent by the builder suddenly stops and invoking the guarantee takes time as the issue goes to court? Sixth, while rent is promised for the period of construction, how does one find alternative accommodation? Finding it in the same area will not be possible, as rents tend to rise once such information spreads. There is, hence, the inconvenience of relocation.
Last, when the new structure comes up, owners rarely consider the higher payments that have to be incurred, as the monthly maintenance costs as well as municipal taxes go up considerably. Individuals paying, say, Rs 2,000 a month as taxes and maintenance will suddenly realise they have to pay Rs 15,000-20,000 to stay in a high-rise building.
These are issues that have no guaranteed answers, and one often hears of stalled projects and owners approaching the courts without getting solutions. In fact, projects often run into legal issues along the way, causing delays. At times, as has been announced in Mumbai recently, new rules can come in the way, such as restrictions on the supply of water for construction projects due to a delayed monsoon. These factors cannot be accounted for.
Infrastructure Needs Planning
From the point of view of the city or town, there is a broader issue. Having 10 or 20 times the number of existing residents strains the infrastructure. Water supply is the main challenge, as the municipal authority will have to ensure multiple times the normal supply. The same holds true for power supply. There will be reworking of all these lines, including gas, drainage, waste collection and so on. This cost is often not considered.
Ideally, all these factors have to be considered before giving approval because the lure of higher benefits for the three stakeholders tends to make them overlook these issues. Further, as these are new projects, there must be insistence on two major infrastructure measures in a city like Mumbai. The first is that the developer must create a water-harvesting system for the project, with the municipal corporation also specifying the proportion of the overall supply that has to be provided by this facility. This should also be associated with a water treatment plant so that the new society becomes self-sufficient to an extent. The second is insisting on harnessing and using solar power, with panels installed on all buildings so that the pressure on the power supply from the local distribution company comes down.
Redevelopment sounds like a capital idea, which surely has benefits, but to ensure there is order in such projects, all these issues need to be ticked so that there is transparency and less scope for failure.
The author is Chief Economist, Bank of Baroda, and author of Corporate Quirks: The Darker Side of the Sun. Views are personal.
