Private builders will get to redevelop cessed buildings in Mumbai

MUMBAI: The Maharashtra government recently cleared a guideline that will open up a huge business opportunity for redevelopment in South and Central Mumbai, considered to be among the few of the most expensive real estate markets in Asia.

In a notification that clears the modified Development Control Regulations (DCR) 33(7) and 33(9), the government has paved the way for redevelopment of about 16,000 cessed buildings in south and central Mumbai and also allowed private developers to redevelop properties with a size of 43,000 sq ft in joint ventures with Mhada, or tenants/owners.

Earlier, this clause under the DCR was allowed only to Mhada and the BMC. This implies that developers, including Orbit Corporation, Housing Development and Infrastructure, Akruti City, Lok Housing and Unity Infra Projects, can now join hands with the state���s housing authority, or their tenants and owners, to develop the properties.

The prospects for such developers are also better as in a redevelopment project, the investment is comparatively low and the saleable area is about 50% of the project. In particular, Orbit Corporation, HDIL and Akruti have developed their business models focusing on redevelopment projects.

Cessed buildings are typically old constructions wherein the tenants pay a predetermined amount to the BMC.
The notification also stipulates an increase in the applicable floor space index (FSI) to four (from 2.5), thereby giving developers more space develop.

Said Cess Properties Developers Association president Kishore Aversekar: ���The modified DCR is aimed at providing an incentive for accelerated development through the cluster approach in the urban renewal scheme and encourages development of projects through joint ventures with the Maharashtra Housing and Area Development Authority, tenants and landlords and private developers.���

The modified DCR has also increased the threshold of the minimum area to be allotted to the tenants/occupants of the cessed building to 300 sq ft carpet from 225 sq ft. ���It���s a huge opportunity for us,��� Ram Yadav, finance director of Orbit Corporation, said.

���The change in DCR 33(9) would allow us to develop at least 20 to 25 new housing societies. We are already in talks with various housing societies and tenants at the moment.��� Other redevelopment-focused developers, such as Shapoorji Pallonji, the Rohan group, Lodha and RNA, have initiated steps to tap the opportunity as well.

The initial investment in the average redevelopment project is about 30-35% of the total development cost that needs to be paid to owners and tenants. Other costs for a middle-class redevelopment project include transit rentals and construction costs.

The government has also applied the eligibility criteria on the lines of the Maharashtra Slum Area (Improvement and Clearance of Redevelopment) Act, 1971 for developers and has made it compulsory for private developers to obtain the consent of at least 70% of the occupants.