MHADA will review its 104 colonies

Recently, the Maharashtra State Government is in his effort to augment housing supply in Mumbai and in that process it asked to MHADA (Maharashtra Housing & Area Development Authority) to to review its all 104 colonies spread over 3,800 prime acres across the city. The Maharashtra State Government has also asked to MHADA to assess the quantum of fresh supply and demand through redevelopment of these colonies.

The housing authority of Maharashtra State Government is currently working on the report, to ascertain the additional housing supply which can be infused into the market in the next few years by redeveloping these colonies which was built between the ‘1960s and mid ‘1980s. According to the top officials of MHADA, “The assessment will be completed in the next three weeks. As now we have to consider the existing housing supply in these colonies which has already consumed FSI (floor space index), space needed to be used for rehabilitation of existing tenants and balance amount of FSI that can be used for fresh housing supply.” Floor space index (FSI) is the permissible development area on a land parcel and it can be estimated that around two lacs people are living in these 104 colonies and they are from middle-and lower-income group whereas; these colonies are located mostly in the central and suburban parts of Mumbai.

According to MHADA officials, “Out of total 104 colonies approx. 72 are such colonies where redevelopment can be undertaken. Of these 72 layouts, 56 complexes are in such a condition that they must be redeveloped soon.” Around 56 of these complexes should be redeveloped on larger layouts and almost not fit to be occupied because these complexes have been declared unsafe to live in by the MCGM (Municipal Corporation of Greater Mumbai).

The state had raised the Floor Space Index (FSI) for these colonies in 2013 to three from earlier limit of 2.5 in order to encourage the societies to come together under cluster development and from long time the efforts have been made to redevelop these housing colonies. Under the recently revised Floor Space Index (FSI), each existing tenant is expected to get a unit spread of over 405 square feet.

Extra FSI can hit the Redevelopment work

Recently, the proposal of Maharashtra government to put extra charge on builders more for the extra 0.33 floor space index (FSI) given for housing projects is likely to hit redevelopment work in Mumbai‘s suburbs. The Maharashtra government has increased the ready reckoner rates by an average 15% every year since 2008 and now government is now considering linking the premium to be paid by real estate developers for the 0.33 extra FSI to ready reckoner rates of 2015 as against current base of 2008 rates.

Effect of an extra FSI:

If this proposal will be accepted, so according to real estate experts, so real estate developers may not find smaller redevelopment projects in Maharashtra viable because of the financial outgo, as the base rate for calculation of premium will increase by almost 100 per cent. This move will push up the costs for home buyers in Mumbai’s suburbs. If central government is serious about project “Housing for All” or to make homes affordable than they need to take the extra measures as most of the announced aim to boost the government’s revenue, but these, including the latest one, will impact home buyers in terms of prices and lower areas offered to existing owners in redevelopment projects.”

In some of the localities and zones, ready reckoner rates have been revised upward by more than 30 per cent to 40 per cent on yearly basis. For the year 2015, revision in rates is popular in suburbs such as Malad, Chembur, Goregaon, Borivali, Ghatkopar and Vikhroli have been increased by 30 per cent to 40 percent. It is the same for plush residential localities such as Worli and areas near Bandra-Kurla Complex. In a sluggish real estate market where prices are weakening, a rise in cost for real estate developers is bound to hit their margins. This is expected to see low number of real estate developers coming forward for smaller redevelopment affordable residential as well as commercial projects in the suburbs.

As per the Nayan Bheda, CMD of Neptune Group, “All the equations in real estate market will change as costing itself will double with this proposal. Redevelopment projects in suburbs like Borivali, Kandivali, Mulund, Bhandup, Kanjurmarg and Dahisar will be hit severely as the cost will move up without much room for recovering it through any price hike”.  Once the proposal is notified, real estate developers are likely to renegotiate on the old redevelopment project agreements as construction is yet to start for them, because most of the real estate builders will be interested in reducing the compensatory benefits, including extra space for tenants.

In 2001, the state government of Maharashtra had decided to grant 0.33 additional FSI to real estate projects in the suburbs and extended suburbs of Greater Mumbai and central Mumbai by sanctioning an amendment to the Development Control Regulations for Greater Mumbai, 1991. As per the Vvikas Aroraa, Director, Marketing & sales, Runwal Group, “The costing is growing up and it will have two possible ramifications. Either home-buyer will have to pay more, which looks unlikely given the current market scenario, or developers’ margins will suffer whereas; other industries in real estate market is assessed on its net realization and profitability , and based on that redevelopment projects in suburbs may not see many takers”.

It is expected that this will make an impact as additional space to be shared with existing tenants. it is expected that this move will help to low the price of housing on the back of augmented supply in the suburbs. The premium accrued to the state government and the Municipal Corporation of Greater Mumbai from this additional 0.33 FSI was to be used on upgrade the city’s infrastructure. The additional FSI could be availed of on payment of premium.