Hsg body memo says state agrees to its demands

Mumbai: An internal note circulated to top builders by the out-going president of the Maharashtra Chamber of Housing Industry (MCHI) expresses hope in the "midst of negativism" in the real estate market. A letter circulated by MCHI president Sunil Mantri on April 9, said the state government had agreed to a slew of their demands. "These are a few positive pointers, which definitely shall give a breather and bring hope in the coming time," read the letter, a copy of which was made available to TOI.
    Mantri said the CM's office will be issuing directions regarding the use of 0.33 floor space index (FSI) in the suburbs. This FSI will be available to a builder in exchange for a premium. It will make them less dependent on Transfer of Development Rights. "We expect a GR would be issued after the assembly session is over. A favourable letter has already been sought from the municipal commissioner for 0.33 FSI premium, as in previous such cases."
    The MCHI president also said they were able to "convince" principal secretary T C Benjamin to issue occupation certificates in cases where the builder has already procured the basic mandatory construction permissions and paid the premium for 0.33 FSI. "The principal secretary has agreed to issue a directive to the municipal corporation to issue occupation certificate in all such cases. This will help to avoid a writ petition, which we were intending to file. We expect that by May 10, 2011, we should have this directive issued to the municipal corporations," said Mantri.
    According to the letter the government will be issuing guidelines for old and dilapidated buildings in the island city. It said that a minister, (but did not say who) will be issuing guidelines for 3 FSI in the island city. "We expect that the GR would be issued no sooner the assembly session is over."
    MCHI members were told that a circular for the exemption of surplus land for the construction of Rental Housing Scheme by payment of premium is also expected to be issued soon.
    In his letter, Mantri said: "It is being decided that non-agriculture (NA) tax will be collected by municipal authorities immediately upon the building plan approval. This will help to save the long period required in getting NA permission from the collectorate's office and so on. A GR in this regard is expected to be issued in May 2011. This is a great achievement and I believe alarge number of our members would benefit out of this."
    He added that the BMC commissioner had agreed to issue guidelines giving open spaces concession with /without payment. "The government has agreed (on MCHI's request) to charge stamp duty on flats transactions on carpet area basis. . This will also help to push our demand for sanction of building plans on carpet area."

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INVESTMENT 10 NEW RULES FOR REAL ESTATE

Realty is no longer the asset that always gives good returns. The ground reality has changed. So have the investing norms. Rakesh Rai explains the new tenets and ways to exploit these for maximum gains.

1
Don't go by the MRP
Most developers desperately need cash to complete delayed projects and start new ones. You can wrangle discounts if you know how to drive a hard bargain.
    There was a time when developers used to quote a fixed rate and offer up to 3% discount if you paid the entire sum within 60 days of booking an apartment (through a home loan, of course). Things are different now. The 3% discount is not the upper limit; it's just the starting point to begin your negotiations. Today, most developers desperately need cash to complete delayed projects and start new ones, which means discounts and freebies if the customer knows how to bargain. Also, in some parts of the country, sales didn't pick up last year between October and January, the period that accounts for approximately 40% of the annual sales of residential projects. This is why it may be the best time to wrangle a good price.
    Seen from another angle, since there is no sanctity of an MRP, developers try to load charges surreptitiously. So, always keep some extra money at hand without which you may not be able to seal the deal. This has assumed greater importance now because in a bid to make the project appear affordable, builders do not load extra charges in the quoted price. 2
The discounts will continue,
so don't be in a hurry
Builders are more desperate to sell than customers are eager to buy. They will continue to offer discounts even if it means taking a hit on margins.
    Ask any builder and he is bound to tell you that his project is almost sold out and that prices will be revised upwards very soon, maybe even next week. The fact is that builders today are more desperate to sell than buyers are eager to buy. Overheated markets, sliding share prices and rising interest rates have made matters worse. While the IPO window is now closed, at least for the short to medium term, listed real estate stocks have taken a beating and tighter lending norms by banks have made capital scarce. Money is not cheap for builders even if it is available.
    Debt is a big worry, too. The 25,000-crore debt—which the RBI allowed to be restructured following the slowdown—is due for repayment. While private equity investments have thrown open an opportunity, investors are driving hard bargains and looking for higher safety and returns.
    Another comparatively cheaper opportunity for listed developers is to borrow against shares held by the promoters. But with most companies already highly leveraged and stock prices continuing to be low, there is not much scope on this front too.
    The only cheap source of money available to realtors is through the sale of their projects. This is where the discounts come in. Given that the situation is unlikely to get better any time soon, builders will continue to offer discounts to attract buyers even if it means taking a hit on their profit margins. The moment they realise that you are a serious buyer, most developers will be ready to negotiate the rates they have quoted. 3
The best deals may not be available with the builder
Brokers usually book multiple flats in a new project and can offer you the choicest properties.
    Real estate brokers have always made news for the wrong reasons—fleecing both buyers and sellers, selling one property to more than one buyer, and conniving with builders to create a hype. While much of this is true, in some cases brokers may also get you the most attractive individual discounts. Some large ones command the best deals from builders because they book multiple properties and then sell them to individuals; it is their way of benefiting from buying in bulk. So once you have zeroed in on a property, do not forget to check with the broker in the locality about the best rate he can offer.
    Another fast emerging layer between the builder and buyer is the underwriter. These underwriters buy a major chunk of the project from the builder and sell it in the market at a premium. In these cases, the developer cannot offer you a lower rate than the underwriter, but the underwriter may be willing to cut his margin if the sales are low. Another mistake most buyers make is ignoring the resale market completely. Sometimes financially distressed investors offload their property at a much cheaper rate than that being offered by the builder. Here again, a broker can be of help in identifying such properties. 4
Nothing comes for 'free'
Don't fall for freebies. The cost of these add-ons is usually factored into the price of the property. Try getting a cash discount instead.
    Freebies are the flavour of the season. From registration fee to modular kitchens, even cars, all are being offered when you book an apartment in a project. Don't fall for these lures. The catch is that all freebies are already factored into the price of the apartment. The same goes for the attractive schemes on offer. The latest to catch investors' fancy is the 'attractive' 10:90 scheme being offered by developers in many cities. The idea is that you pay just 10% of the property cost now and the rest on possession. The truth is that developers urgently need the cash and many of the projects have not even got approvals from the authorities. As HDFC Chairman Deepak Parekh puts it, "Within days of buying a plot, builders are putting out advertisements accepting booking at 10% upfront payment". This puts a question mark on these projects.
    Another such lure is the 'attractive' financing schemes that builders offer by tying up with banks. In most cases, you will get a better deal by approaching the bank directly.
    'Guaranteed returns' is another bait being used by builders to trap investors. It is only after you make the down payment that you are told about the fine print—you get the returns only if you share the property with two others or the advertised returns are only for an investment above a certain amount. The builder knows that after you put in the money, you will either stay put or invest more for better returns. The bottom line is, don't look for freebies; try getting a cash discount instead.

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REDEVELOPMENT POTENTIAL

Hemal Jain details the benefits of redevelopment and explains why it is vital, towards meeting the housing demand of a city like Mumbai

Redevelopment, which refers to the process of reconstruction of residential/ commercial premises, by demolishing an existing structure and constructing a new structure in its place, has emerged as a useful option for developers. Redevelopment is done by utilising the potential of the land, by exploiting additional TDR and FSI, as specified under the Development Control Regulations of the Municipal Corporation of Greater Mumbai (MCGM).
Why is redevelopment required?
Redevelopment is a continuous process of urban renewal. Indian cities have grown enormously and as a result, there is a dearth of land in the central areas. Redevelopment opens new
avenues for development and also gives an opportunity to build complexes that cater to modern lifestyles. However, whether a developer builds a luxury project or something else, depends upon the location. For instance, locations like Worli or Cumballa Hill in south Mumbai, which have scope for redevelopment of slums or upscale buildings, are more likely to be venues for luxury housing projects. On the other hand, redevelopment in the suburbs will depend on the location's profile. The only other alternative, for accommodating the increasing demand for housing at all levels, is through horizontal growth. However, this will require vastly improved transport facilities and civic infrastructure.
    Another scenario, where redevelopment can be an ideal solution, is when a society is in dire need of extensive repairs and at the same time, does not have the necessary funds to carry out those repairs. On one hand, such societies may not have the resources and expertise, to handle the repairs on their own and on the other hand, the families of the members may have expanded, thereby requiring more space.
    Old buildings also have other drawbacks such as lack of security and maintenance serv ices, absence of common facilities like gymna sium and society office, unavailability of prop er playing area for children in the compound leakage problems, absence of elevators, poor in terior planning of rooms and low resale value due to the poor condition of the buildings.
    Benefits of redevelopment, to developers
    and tenants
    Builders/ developers, who opt to purchase land and develop the same, incur huge stamp duty cost, vis-à-vis transfer of the land. Howev er, when it comes to redevelopment of old buildings, the stamp duty is reduced by a sig nificant extent and this acts as a major benefit for developers. Tenants too get several benefits like hassle-free execution, extra carpet area, in crease in the flat's value and in most cases, al ternate accommodation/ reimbursement or rent compensation, for the period during which the building is under construction.
    The need for redevelopment, in Mumbai
    There is huge potential for redevelopment, in Mumbai, due to the constraints on land availability, coupled with the mismatch between demand and supply of housing stock. On the other hand, there are thousands of ageing buildings where it may not be viable to carry out structural repairs. The only solution is to pull them down and reconstruct them. The problem of dilapidated buildings in the city of Mumbai is becoming more acute, with each passing year. Consequently, for a majority of the cities in India, redevelopment of old buildings becomes crucial.
    Nevertheless, redevelopment of housing societies is usually burdened with bitterness and complaints of highhandedness and corruption against the managing committee. With the mid-income segment today becoming a huge purchasing market, developers are moving towards redeveloping older structures into modern luxurious complexes with facilities like free parking, gardens and play areas. In the ultimate analysis, complete and timely delivery seems to be the most crucial factor, when it comes to redevelopment.
    (The writer is director, Neev Homes)

List of documents, required from the societies for redevelopment: Society registration certificate; Approved building plan Conveyance deed/ lease deed/ sale deed Copy of resolution documents/ papers/ deeds/ agreements, etc., whatsoever in nature, related to the society's plot Property card DP remark Extract of 6/12, 7/12 Search report and title certificate Index II NA order City survey plan Copy of IOD, commencement certificate, occupancy certificate, completion certificate.

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Crores riding on CM’s ruling on additional FSI

TDR WORTH NEARLY . 400 CR AT STAKE

Mumbai: While chief minister Prithviraj Chavan weighs whether or not he should grant additional floor space index (FSI) for construction activity in the suburbs, state officials claim there is a lot riding on his decision.
    At stake is a transfer of development rights (TDR) worth nearly Rs 400 crore. The decision is also likely to impact 326 building proposals which have already been sent to the Brihanmumbai Municipal Corporation (BMC) for additional FSI.
    FSI is the ratio of buildable area to the total area of the plot.
Presently, a basic FSI of 1 is permitted for construction in the suburbs. Besides this, developers are also allowed to use TDR equivalent to another 1 FSI, bringing the overall cap on the permissible FSI to 2 ( two times the plot area).
    Chavan's office is examining a proposal to hike the basic FSI to 1.33, while retaining the overall cap of 2. The state urban development (UD) department, which had initiated the proposal for additional FSI in April, 2008, changed its stand on the issue recently. A note submitted by department principal secretary TC Benjamin advised Chavan against sanctioning the grant of additional FSI. It also arned that extra FSI would radically impact the city's development plan (DP) and burden infrastructure.
    Earlier, in a Bombay high court case regarding the proposal, the UD department filed an affidavit stating that the move would not adversely impact infrastructure and the DP. Following the UD department's change of heart, Chavan sought the view of the municipal commissioner Subodh Kumar on the issue. In his report, Kumar countered the UD department's objection. using projections of construction activity, use of FSI and TDR in the suburbs for the next ten years. He concluded that "there would be no significant change in the DP owing to consumption of extra FSI." Stating that the move would boost the BMC's income and help control TDR rates, Kumar asked Chavan to sanction the proposal.
    Officials said if Chavan favours the BMC, it would result in a drop in prices of TDR, which are currently hovering around the Rs 2,500 mark. Additional FSI would mean reduced dependence on TDR (instead of 1 TDR, only 0.67 would be needed), which is to be bought from the open market. This would ultimately reduce dependence on builders for construction. Civic officials said two real estate firms, HDIL and DB Realty, which generate TDR through their inherent business model, hold a lion's share of the TDR (1.20 lakh sq m).
    However, if Chavan sides with the UD department, it would instantly impact the 326 proposals which have already applied for extra FSI and are waiting for the sanction. The BMC has already collected a premium from many of these in lieu of the additional FSI grant. Civic officials said that such a decision would also impact redevelopment activity in the suburbs in the long run.

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