6 things you need to know about property redevelopment

Dilapidated buildings on the verge of collapse are a grim reality in Mumbai. Developers, as an incentive to owners of older buildings, offer additional area, money, and the promise of a new flat with a better amenities.

hidden August 25, 2012 14:05:43 IST
6 things you need to know about property redevelopment

With limited availability of open land parcels in Mumbai, major developers are now looking at venturing into the redevelopment space.

Dilapidated buildings on the verge of collapse are a grim reality for thousands of housing societies across Mumbai. Developers, as an incentive to owners of older buildings, offer additional area, money, and the promise of a new flat with a better amenities .

But owners should keep a few things in mind before opting for redevelopment.

What is redevelopment and why is it needed?

Housing redevelopment refers to the process of reconstruction of a residential premise by demolition of the existing structure and construction of a new one as per approvals from the Municipal Corporation of Greater Mumbai (MCGM). It ideally works best when a society is in dire need of extensive repairs but is starved of the necessary funds for it.

Developers, on their part, are also on the lookout for properties with unused development rights where they can build a new and higher structure where the additional storeys can be sold for a tidy profit.

As per the terms of the agreement between the developer and the society in question, existing members of the society receive new flats in the reconstructed building of an area equal to or more than the area of their existing flats. But redevelopment can only take place if 75 percent of the members tender their consent.

Over 20,000 housing societies, 17,000 cessed buildings and over 3,000 Mhada (Maharashtra Housing and Area Development Authority) structures are waiting for redevelopment proposals.

The advantages of redevelopment over repair

According to Redevelop Mumbai, a project management consultant that has handled over 45 redevelopment housing societies in Mumbai, the repair work of a building which is already 25 years old will only increase the life of the building by three to four years. "Structural repair is not economically feasible to take care of seepage, weak walls and foundations, leaking water pipes, etc," Dilip Shah, Senior Counselor and Analyst for Redevelopment of Housing Societies, told Firstpost.

6 things you need to know about property redevelopment

Redevelopment works best when a society is in dire need of extensive repairs but is starved of the necessary funds for it. AFP

With redevelopment, the members get a new building, more space and monetary benefits without spending any money from their own pockets. Shah says the developer can offer extra amenities like a gymnasium, a generous car park, and high-end security systems, among other things.

Disadvantages

However, while redevelopment may be the latest buzz, citizens argue that developers often tear down old colonial mansions to build luxury towers for the rich. And more often than not, it is often haphazard and done without the consent of society members.

Any building that is over 25 years old can go for redevelopment once it is declared dilapidated by an architect. Under the provisions of Development Control Rules it has become easy for developers to get buildings declared dilapidated even when they are not really so. Given the strong politician-builder nexus in the city, it is not difficult to get a building declared dilapidated by a government architect.

The redevelopment process also causes inconvenience to the residents as they will have to look for alternative places to stay in while the builder demolishes the old building and constructs a new one. It usually takes the builder at least 18 to 24 months to complete a project with an extended grace period of six months in case of any adverse eventuality.

Follow the ground rules

1. Redevelopment is usually burdened with bitterness and complaints of high-handedness and corruption against the Managing Committee of the society, which is why society members should always appoint a lawyer before signing a contract with the builder."Builder should be transparent, reliable and trustworthy. The most recommended way to choose a builder is to go by the tendering system," said Shah.

The society should prepare a comparative chart and, after checking the merit, reputation, technical capability, experience, financial status, quality of construction and successful completion of projects, it should select the builder.

2. The contract should clearly mention the obligations of the builder and the society members and the penalty or consequences of any breach of the contract by either of the parties. Once the agreement is accepted in terms of area and corpus fund, it cannot be revised.

"If the carpet area, as documented in the agreement, is not given by the builder, the owner can claim appropriate compensation through a consumer court by filing a complaint against the builder under the counts of Breach of Trust, Cheating, Unfair Trade Practice and Deficiency in Service," Shah said.

3. The housing society should insist on a bank guarantee, which would take care of monetary compensation to ensure the project is not delayed or stopped midway. "The successful bidder has to give a bank guarantee equivalent to 20 percent of the total project cost," according to redevelopmumbai.com.

The agreement should mention the time of completion of the project, the size of the new houses, the mode and nature of monetary compensation, if it's a one-time payment, reimbursement of rent, or a mix of both.The developer also has to offers a monthly compensation in advance along with the brokerage and transportation charge that the tenant has to incur while securing an alternate accommodation, said Shah.

4. The monthly compensation should suitably be agreed upon, which is equivalent to the prevalent rate of rentals in the same vicinity. The developer usually pays post-dated cheques. In case this advance rental is dishonoured, the society has the right to prevent the builder from either selling or allowing any new flat purchaser to occupy their respective flats.

5. At the time of vacating the premises, all the members have to give consent and vacate as per the resolution passed in the general body meeting. In case, a member refuses to do so the society or the builder may move the competent court.

How builders can manipulate FSI rules and terms of the agreement

Builders often twist and grossly violate the rules of by unlawful planning and constructing additional/unauthorised areas that are beyond their entitlement. "The buyers of such unlawful flats/properties land themselves in deals that lead to litigation at a later date," said Shah.

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