Redeveloping Mumbai Housing Societies: Builder vs Self-Redevelopment Considerations

Synopsis

Revamping aged societies opens the door to fresh residential and commercial opportunities in Mumbai. Choosing between hiring a builder or embarking on self-redevelopment requires careful legal and technical assessments. The self-redevelopment route, supported by government initiatives, can be beneficial. Success relies on meticulous planning and strong consensus among members for the project to thrive.

Listen to this article in summarized format

In cities like Mumbai where it is tough to find new land at prime locations, redeveloping old societies is a way to create more residential or commercial spaces. Sometimes, though, the push for redevelopment comes from the fact that the building is so old that it can’t hold up any more.

Whatever be the reason for redevelopment, you have two options: hire a builder for a fee or a share of the new space or go the self-redevelopment route. According to an ET Wealth article, most redevelopment projects in Mumbai are set up so that the builder covers the redevelopment cost and in return, gets to sell some or all of the extra space once the redevelopment is over.

Of course, with self-redevelopment, the housing society pays for the redevelopment or takes out a loan, and then they keep the extra space for themselves after it’s completed.

This article highlights what to consider before diving into redevelopment- whether to go with a builder or handle it yourself.

Legal aspects to make clear before proceeding with redevelopment with a builder

Before proceeding with redevelopment, a housing society should first establish that redevelopment is technically, legally and commercially justified, and supported by an independent structural/technical report.

Aradhana Bhansali, Senior Partner at Rajani Associates, explains to ET Wealth Online that before inviting tenders, the housing society should undertake a comprehensive due-diligence exercise covering:

Title of the property: You need to verify the property title, property card, CTS records, sanctioned plans, previous approvals and development rights.

Land status: One of the important things to do is first ascertain whether the plot is freehold, leasehold, BMC/MHADA-owned or privately owned, and if there are any restrictions for redevelopment under their title documents or as per zoning remarks published by the planning authority.

Litigation and encumbrances: Any pending disputes by the housing society or against the housing society or issues or other matters that could affect redevelopment.

Development potential: An independent technical report should provide the permissible FSI/TDR, rehabilitation area, fungible FSI and the maximum area to the society that can be secured for existing members under the applicable development scheme under DCPR provisions.

Tender and builder terms: Clearly define the scheme of redevelopment which can be undertaken to maximise the members' areas, members’ permanent carpet areas after the technical report is discussed and points on corpus, rent/transit accommodation, shifting charges, timelines, bank guarantees, delay compensation, approvals, specifications, sale component and termination/default provisions, covered.

These matters should be resolved and documented before throwing open the tender. The society should enter negotiations with full information and maximum bargaining leverage against the builder.

Also read: Ageing housing societies: How homeowners can avoid losing their homes and money to redevelopment delays

Legal aspects to take care of if undertaking self-redevelopment

Bhansali says self-redevelopment can be an attractive option, particularly for a small society with financially capable members, provided the project is technically and financially viable and the society’s title is clear.

However, whether to undertake self-redevelopment or not should be decided on the basis of an independent feasibility report and after properly recording the consent of the maximum number of members, to avoid disputes at a later date.

Plus, the Maharashtra government provides a legal framework for housing societies that opt for self-redevelopment by giving institutional finance through the Mumbai District Central Co-operative Bank (MDCC Bank), a nodal financing agency for eligible self-redevelopment projects.

According to Bhansali, the Maharashtra policy also envisages a single-window mechanism for obtaining various redevelopment permissions to substantially simplify and expedite the approval process. These provisions are an important incentive for societies to opt for self-redevelopment instead of appointing a private builder.

Bhansali explains that before starting self-redevelopment, in order to avoid internal conflicts with members, the housing society should have the following issues clear and cleared out:

Title: Clear title/conveyance and absence of litigation or encumbrances affecting redevelopment;

Financial feasibility report: An independent technical and financial feasibility report identifying permissible FSI/TDR, rehabilitation area, saleable component and the expected project cost;

Housing society must pass resolution: A properly passed General Body Resolution approving self-redevelopment by more 100% as MDCC for funding does want any conflicting member to create any issue pertaining to the proposed scheme, member entitlements and the funding structure;

Transparency: Clearly document the members’ contribution, bank finance and a dedicated project account, with transparent financial controls. Things like appointment of an experienced architect, project-management consultant, legal adviser and financially/technically competent contractor, must be made with clearly defined responsibilities, fees, performance security, timelines, specifications and termination provisions;

Written agreements for transition period: There should be written arrangements for transit accommodation/rent, shifting expenses and other member entitlements; there should also be a monitoring mechanism which will make periodic audits and share progress reports with society members.

(Join our ETWealth WhatsApp channel for all the latest updates)