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Self-Redevelopment: The apt solution for better quality homes

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It has emerged as the most apt solution to the redevelopment problem in Mumbai

India’s financial capital Mumbai has nearly 14,000 buildings that are in dire need of redevelopment, according to private estimates. The shocking number of old buildings in Mumbai is a matter of concern, as news of such buildings collapsing is on the rise. While MHADA has helped in repairing 1000 dilapidated buildings, more than 3000 buildings have been repaired by the Society members themselves. In Mumbai, while increasing costs and shortage of space makes it impossible for residents to move out of ageing and derelict buildings, for them the concept of self-redevelopment has become a dream come true to have a new, better & safe home to stay.

Close to 5,800 projects are stuck due to Builders’ failure to fulfil their obligations. Many of them have defaulted on paying for the temporary accommodations rented by the displaced residents, leaving them with no other option but to stay with their close relatives. On the contrary, self-redevelopment allows Societies to act as Builders, hire Contractors, Architects, control the use of land and retain the profit that otherwise would have gone to the Builder. Perturbed by the frequent cases of fraud by real estate Builders or slow-paced progress of Projects under them, the residents of several Co-operative Housing Societies in Mumbai embraced a newer model of rebuilding self-redevelopment.

Taking this into consideration, self-redevelopment has emerged as one of the most apt solutions to the housing problem in Mumbai. In the self-redevelopment model, Society members resort to the project redevelopment of their homes themselves. Within this framework, the Society has complete authority to select the right set of professionals to implement the process, raise funds and conduct feasibility studies. The arrangement ensures faster project delivery, higher profits and complete control over the use of the land, keeping the fallacious Builders at bay. The funds raised are then used for initial expenses of recruiting professionals such as Contractor, Architect, Accountants, Legal advisor, and so on, for the execution of the project, and the sale of the extra units developed in the process.

Under self-redevelopment, the homeowners are the sole benefit reapers as they save more and earn profits. The homeowners have complete control over the quality of construction, the completion timeline, and enjoy more surplus funds because they retain the right to sell surplus homes generated in the redevelopment process. Different professionals are hired for the execution and management of the project. Hence, they have no binding authority on the project, and the Society is free to plan and design the new construction, easing the rent allotment procedure and acquisition of extra space.

To accelerate this process, the government has already launched the self-redevelopment scheme, with MHADA promoting a single window system for the prompt processing of self-redevelopment proposals, while the MDCC Bank has sanctioned loans to provide financial support to housing societies undertaking self-redevelopment, thus giving a boost to the popularity of this approach.

The foremost thing for a building to go under self-redevelopment is the consensus among members regarding the project. There is a high level of competence, legal and construction expertise, constant monitoring of changing mandates, proficient management of loans and conflict, project sales, and excellent communication and coordination skills that are required to undertake a self-redevelopment project.

To avoid inefficiency arising from this, Societies should hire a professional team to initiate and monitor the entire self-redevelopment process. They, in turn, handle all the layered complications and procedures, from the conceptualization and the fundraising, to the ultimate execution of the project. By simplifying and accelerating the process, the benefits of self-redevelopment are retained, the process is hassle-free, and the society maintains power over the project. Collaborating with such a team of experts allows the community to extract maximum advantage from the self-redevelopment process.

On the whole, self-redevelopment is a pragmatic solution to the conventional problem and is emerging as a movement. In fact, many housing societies in Mumbai are resorting to it now. Not only does it assure government support to the distressed residents of old buildings but also ensures better planning, construction and timely delivery of the projects.

Self-redevelopment puts societies in complete charge: Pranay Goyal, Wedevelopment

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Self-Redevelopment in Mumbai

Pranay Goyal, founder, Wedevelopment, in an exclusive interview with Housing.com explains the crucial benefits societies will get if they opt for self-redevelopment and how this process can mitigate the problems that home owners have faced, with builders redeveloping their societies.

Some edited excerpts of the interview:

Q: What is self-redevelopment? How has self-redevelopment been a crucial aspect for societies, especially in aggressive real estate markets such as Mumbai?

A: Under self-redevelopment, the entire redevelopment process is planned, executed and managed by the society members, instead of handing over the process to a builder. Typically, most societies preferred to redevelop their buildings through real estate builders, as they are not aware of all the requirements that come along with this process. Redevelopment through real estate builders is a tug of war where both the parties strive to get maximum benefits for themselves. This tussle, many a times, leads to situations and consequences which are not in favor of the society members.

As per media reports, there are more than 5,800 projects in Mumbai, which are stuck in redevelopment today, affecting more than 1,25,000 families. The reasons for all these projects getting stuck, range from lack of funds to delays in permissions to miscalculations in carpet area allotment. While the reasons are aplenty, most of the times, they are directly related to the builder’s handling of the redevelopment project. For society members, taking up self-redevelopment of their housing society keeps the members safe from any problems arising from the builder and the society is assured of more benefits and profit from the project.

 

Q: How is self-redevelopment different from traditional redevelopment? What benefits does self-redevelopment offer to a society that opts for it?

A: In the case of self-redevelopment, the overall control of the project is always in the hands of the society. There are multiple advantages for a society opting for self-redevelopment over builder-led redevelopment. Listed below are crucial benefits:

1. Extra area

Society members get higher carpet area as compared to what is offered by builders. Society members can further buy extra area on cost basis for themselves.

2. Surplus

The entire surplus generated by the project gets distributed amongst existing society members, which otherwise would go to the builder.

3. Control

In the case of self-redevelopment, the entire control remains in the hands of the society. This includes appointment of agencies/resources, cash flow decisions, sales decisions, design decisions and all critical decisions throughout the project. With complete control, the project moves according to the requirements of the society and they have a complete view of the possibilities of the end results, based on their decisions.

4. Risk mitigation

The society has complete control on every decision and this authoritative position helps them in minimising risks. The society can take immediate decisions on cost-benefit ratio and get the operation moving ahead faster. Also, the society can take all the permissions before vacating, thus, securing the project from getting impacted due to any change in norms later.

5. Society as promoter

The NOCs, designs and documents are directly in the name of the society. These clear assets, which even after the members start residing, are otherwise not available today with societies. In self-redevelopment, this becomes a big advantage as all these are in the name of the society.

 

Q: What are the initiatives that the government of Maharashtra has come up with, to encourage self-redevelopment?

A: The government has already launched the self-redevelopment scheme, with MHADA promoting a single-window system for the prompt processing of self-redevelopment proposals, while the MDCC Bank has sanctioned loans to provide financial support to housing societies undertaking self-redevelopment, thus, giving a boost to the popularity of this approach. Also, in September 2019, the government issued a Government Resolution (GR) that caters specifically to self-redevelopment. The government has doled out a number of concessions for registered housing societies that opt for self-redevelopment. This includes a one-window system, extra FSI and incentives like a time frame for approvals from the planning authorities, for carrying out the construction of the project.

 

Q: A society may have concerns that it may not be able to go in for self-redevelopment since they don’t have enough knowledge about the process. What is the way forward for such societies? How can they ensure that their interests are safeguarded?

A: We believe in first educating the society, to help them in taking an informed decision. Once we take them through all the nuances of self-redevelopment and see their readiness, we engage with the society, to check the feasibility of the project. When the society understands the different aspects of the project, such as the feasibility, the costs involved, the amount to be budgeted and the possible benefits, the society becomes much more aware of what lies ahead in the project and is in a position to take a thorough decision, considering all perspectives. This is the stage at which we get enrolled by the society as a development manager, to plan and manage the execution of their self-redevelopment journey.

 

Q: Is it easier or more difficult to get banks’ financing for self-redevelopment projects? Why?

A: Currently, the Mumbai District Central Co-operative Bank lends to self-redevelopment societies. Loans are available, once the society gets the ‘Intimation of Disapproval’ or IOD for the project. The bank currently funds up to 95% of the project cost, at 12.5% p.a. rate of simple interest and a small processing fee of 1%. The society can later repay the loan and the interest, through the revenue generated from the saleable area. For banks, funding self-redevelopment projects is the next big untapped opportunity. With the Maharashtra Housing and Area Development Authority (MHADA) and the state government promoting this path-breaking concept, many other banks have started taking a keen interest in understanding and lending to such projects.

Self-Redevelopment Loan Policy

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Self-Redevelopment Loan Policy

Who will fund my society’s Self-Redevelopment project?

Let’s understand the loan policies and criteria for getting a loan approved for your Self-Redevelopment project. As of today, Mumbai District Central Co-operative Bank Ltd. (Mumbai Bank) is the only bank that provides loans for Self-Redevelopment projects.

Earlier, the Mumbai Bank would provide only construction loans but over the years, looking at the requests from Societies they introduced a special policy for supporting societies in their Self-Redevelopment projects. This policy has gone through several revisions and is now quite lucrative for societies as it gives them a better advantage and makes the process easier.

Who can take a Self-Redevelopment loan? The Mumbai Bank offers loans to co-operative housing societies that are members of the bank and have a savings bank account with the bank. A few loans have already been sanctioned and disbursed as in the case of Wedevelopment-managed projects – Jayakunj CHS and Suma Sam CHS in Borivali West, Mumbai.

When are these loans available? Loans from the Mumbai Bank are available post the society gets the ‘Intimation of Disapproval’ or IOD for the project. Societies have to fund the project themselves or seek support from external investors/ NBFCs till the IOD stage, after which they can receive the bank funding.

Lastly, what are the key features of this loan? The Bank currently funds up to 95% of project cost or up to Rs. 110 Crores, whichever is lower, at 12.5% per annum rate of simple interest and a small processing fee of 1%. Project cost considered by the Mumbai Bank includes cost of TDR, cost of premiums/ approvals/ NOCs, rent, brokerage, fees for professionals/ consultants, construction cost, cost of additional amenities like solar, etc.

The society can later repay the loan and the interest through the revenue generated from the saleable area. The bank also offers a two to three year moratorium on the loan based on the Project size. Mr. Uday Dalvi, DGM at Mumbai Bank and a key nodal officer for Self-Redevelopment, explains this – “Though interest on the loan is calculated for this period, we don’t take it until the end of two years or three years depending on the size of the project. Meanwhile, societies sell the saleable flats and pay the loan with interest. So, the society does not have to pay any interest from its pocket initially while the project needs funds.” Mr. Dalvi and his team have been the headliners in shouldering this responsibility by organizing hundreds of meetings with societies and engaging with the society members across Mumbai over the last few years to promote Self-Redevelopment.

Looking at the number of societies opting for Self-redevelopment, Wedevelopment has started approaching other banks and financial institutions too for giving further funding options for societies. Many of these banks have passed verbal approvals as well. It is expected that in the next six to eight months there will be an entry of many financial institutions in the Self-Redevelopment funding space. Even Mumbai Bank is approaching other cooperative banks to create a consortium and give benefits to more and more societies taking this initiative.

Self Redevelopment projects in Mumbai

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Self-Redevelopment projects in Mumbai

In 2017, as per reports, there were 16,000 derelict buildings in Mumbai. The shocking number of old buildings in Mumbai is a matter of concern, as news of such buildings collapsing is on the rise. While MHADA helped in repairing 1000 dilapidated buildings, 3000 buildings have been repaired by the society members themselves. However, for some dilapidated buildings, this repair solution is an expensive and temporary affair.

Most societies typically opt for redevelopment of their building through a developer. But with problems related to traditional redevelopment piling up along with delays in commencement and completion and a lack of benefits, many of these societies have decided to opt for Self-Redevelopment instead of builder-led or traditional redevelopment.

But Self-Redevelopment is not a new concept. In fact, it is the oldest and most beneficial approach of redevelopment that is making a comeback due to the distrust and delays involved with builders.

The government has been extremely supportive of the concept, launching the Self-Redevelopment scheme 2018 on January 8, 2018. The scheme was a move to accelerate the Self-Redevelopment process. The Maharashtra Housing and Development Authority (MHADA) too has provided a single window system in order to secure the required permissions promptly for society’s opting for self-redevelopment, thus giving a boost to the popularity of this approach.

Presently, the Mumbai District Central Cooperative Bank Ltd (Mumbai Bank) lends finance required for Self-Redevelopment to societies and has already cleared multiple projects.

All of this support has resulted in society members leading the redevelopment project, making decisions and overlooking the process of the project themselves.

Saptarishi CHS in Borivali, currently standing tall, is an example of a completed Self-Redeveloped society. “The builders were unwilling to proceed and the society’s condition was very dilapidated. We thought it made better sense to get a loan by mortgaging the property and go in for self-redevelopment”, said Arch. Umesh Gavade, member of the society who managed the entire project of Saptarishi CHS themselves, and is now a key part of Wedevelopment.

An example of an on-going self-redevelopment project in Mumbai is Ajit Kumar Society, Goregaon. Here, the old structure, only 3 storeys high, is now being replaced with a 9 floor block where each apartment gains at least 100 sq. ft.  The secretary of the building stated that the processing of project approvals has been fast, as the bank – as a government entity – has tied up with state agencies to expedite formalities.

Apart from few societies managing Projects themselves, there are also societies who have taken support of professionals and are moving ahead at an accelerated pace. Two of these, Harmony (Suma Sam CHS) and Jayakunj CHS in Borivali West, being managed by Wedevelopment, have received disbursements from the MDCC Bank and have reached further stages of construction. In both these projects societies are getting double the benefits than what any builder was ready to give. “We got to know that Mumbai District Cooperative bank grants loans for self-redevelopment of old buildings and that Wedevelopment will take care of all the other requirements managing and supporting the process. The managing committee of our society helped the residents (especially the retired people) understand that they will not have to run around to do the paperwork, look for contractors or finding a house to rent temporarily and moreover the benefits were double of what any builder was offering us,” says Vijay Ladhe, 68, chairman of the managing committee, Jaya Kunj Co-operative Housing Society.

These projects have paved a success path of self-redevelopment for the other societies to tread on.