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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.

Selecting a PMC for Self Redevelopment

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PMC for Self Redevelopment

Traditionally PMCs were Architect or Engineering firms working for the Societies to gauge their development potential based on the prevalent Government norms. They took one step ahead and started supporting societies in getting Developers on board to fulfil their Development needs.
But now, when it comes to Self Redevelopment, the requirement is far more broader and complex than what used to be done in Traditional Redevelopment.
What Societies need in Self Redevelopment is a management body that not only certifies the work done by different agencies, but also someone who can manage the different professionals involved, the finance arrangement aspects, the quality standards, the government norms, the legalities involved and the sales management. Societies also want the management body while keeping track of all the above aspects to be capable of providing them insights, supporting them in making critical decisions and anticipating the possible risks and providing mitigating options.
The expectations of the societies from PMCs when it comes to Redevelopment led by Developers and the ones for Self Redevelopment are completely different. Since Self Redevelopment is in it’s nascent stage, societies are still figuring out what to expect and what not to expect from the PMCs. And in the confusion, they end up going with PMCs which are equipped with limited capability for this type of Redevelopment. And as time passes, the Societies realise the pitfalls and are again stuck midway.
The new role is fairly complex and will get clearer with times to come.
PMC for Self Redevelopment

Disadvantages of Self Redevelopment

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Top 5 Disadvantages of Self Redevelopment

While societies are suddenly eyeing for self redevelopment with a view to the benefits available, they need to also be cautious to get into this zone, as this approach is not as easy as it seems. The following are top disadvantages which stops societies from moving ahead with self redevelopment:

1.    Competence

Having know-how of the entire process, the nitty gritty about construction and norms is a critical requirement for the project. If not available in-house, this can create a major deterrent  while managing multiple experts and professionals.

2.    Decision Making

Getting consensus amongst members at various stages becomes challenging as the number, frequency and level of technicality of the decisions is pretty high. And any delay in such decisions can instantly impact the time factor of the project which in turn impacts the project cost.

3.    Ability to Sell

The biggest factor where societies have a fear in moving ahead with self redevelopment is the sale of flats as it directly links to the mortgage. Selling the flats at the right time and at the right price is important for the recovery of project cost which in turn impacts the mortgage. Even after sale of flats, keeping tab of the recovery is important to avoid the impact on the cash flows.

4.    Management Capability

Doing right things at the right time, sorting and managing different resources and their requirements, while coordinating between different professionals, agencies, suppliers and their deliverables. Managing is a different game altogether. While getting people with the know-how of the process is possible, the right management capability can push the project on either side of the scale.

5.    Availing Finance

Finance is the oxygen for the project, and at any point of time if not available can stall the project and create major hassles for the stakeholders involved. While some agencies are there to support the project partly, creating the right coalition amongst such agencies is also crucial for the smooth flow of the project.

Benefits of Self-Redevelopment

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Top 5 Advantages / Benefits of Self-Redevelopment

The need for self-redevelopment has gone at an all-time high. Societies are very much interested today to go in for self-redevelopment looking at the benefits which are available for them. With all other advantages remaining the same with a developer led redevelopment, the following are the Top 5 Benefits of Self-Redevelopment distinctly available for society members in self redevelopment:

1.    Extra Area

Society members get higher carpet area as compared to the one given by developers. Society members can further buy extra area at a better discounted price for themselves.

2.    Surplus

The entire surplus generated by the project, which would have otherwise gone to the developer, in case of self-redevelopment gets distributed amongst society members. This is a fairly high amount and is used by members to manage their house maintenance when they start residing in their new homes.

3.    Controls

The bigger advantage of doing self-redevelopment is the entire control being in the hands of the society. Controls like agencies/resources appointment, cash flow decisions, sales decisions, design decisions and all other day to day decisions of the program. The higher the control on the project operation, the higher the control on the output.

4.    Risk Mitigation

The controls of decisions being in hands of society brings them closer to being an authority to minimize risks. The society can take immediate decisions on cost-benefit ratio and get the operation moving ahead faster.

5.    Society Name

The NOCs, designs and documents will  be 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.

Approaches to Redevelopment

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While all the approaches lead to the same domain of work, the way in which each one gets executed and the impacts are very varied. There are some stark differences in the approaches which are listed below in a simplistic manner.



Extra space for each menber

Corpus for members

Profit from project

Control of the project

Quality of the project

Designs and Plans

Design as per members needs

Fund Management 

Funds alloted for rent

Expertise for the entire project

Timely completion of project

Funds for the project

Dealing with Municipal and other authorities

Knowledge about the entire process

Managing the entire program and all the experts/ agencies

Risk Management

Builder Led 
Redevelopment

Less

Availible

Availible for developer

With the developer

Dependant on the developer

In the name of the developer

Has the authority to change designs without society consent 

Developers Control
Confidential

PDCs for only 6 to 12 months or monhtly cheques

Has the experience in-house and or works with his networks

Can be delayed 

Developer put his own money/ gets investments 

Has experience in dealing with the authorities 

Has the requisite know-how

Has the requisite management capability

In favour of developer

Self
Redevelopment

High

Availible 

Availible for society members

With the society 

Dependant of the society and their ability to manage the deliverables from the agencies

In the name of the society

Designs made as per member's needs

Society's control
Transparent

Society's Control

Empannels different experts/ agencies required across the project timeline through known networks or tendereing

Society's ability to manage different resources and the entire program

Society generates money through self-funding or loans from financial institutions

Dependant on outsourced agency or do it by self

?

Maybe availible in the society Or dependant on extrenal experts/ agencies

Society's ability to see the different risks, prioritize them and take timely appropriate decisions

Wedevelopment

High

Availible

Availible for society members. Wedevelopment strives for increasing surplus through effective program management

With the society. A systematic process which helps the society in objective decesion making across different stages of the project

Defined quality management systemand program management aligned with set standards and the expectations of society menebers 

In the name of the society

Designs made as per member's needs

Society's control
Tranparent

Society's control 

Has 26 types of different experts/ agencies empanneld through a standardised assesment process

Assured timely completion of project

Capability of availing required funds for the program

Has an understanding of requirements of different authorities and the agencies that can deliver the requisite

100% of the funds arranged and deposited in society's account

Has the required management capability

Risk mitigation strategies and process in favor of society members to ensure that program completes within the projected timline with the project benefits for the society