Mumbai real estate: 10 things homeowners of societies looking to get their buildings redeveloped should keep in mind
June 21st, 2024
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Redevelopment of old housing society buildings in the Mumbai real estate market has picked up steam over the last few years, especially after the Maharashtra government granted waivers to developers post the Covid-19 pandemic to give a boost to the sector.
In Mumbai, of the monthly average of 10,000 property registrations, around 10% to 20% property registrations are that of redevelopment projects, according to data shared by Knight Frank India, a real estate consultancy firm.
With redevelopment of old buildings picking up, homeowners of societies looking to get their building redeveloped should keep in mind the following.
1 What is redevelopment?
In Maharashtra, several old buildings, especially those comprising two to seven storeys, are currently being redeveloped.
Redevelopment of housing projects involves the demolition of the old structure and replacing it with a modern and bigger building subject to various norms.
Also, residents of the old building get larger apartments in the newer building for free as a certain number of apartments in the new building are sold by the builder in the open market for a profit. The government too gets to earn revenue by selling the floor space index (FSI) to the builder.
An old society building can go in for redevelopment in accordance with the Maharashtra Apartment Ownership Act (MAOA), provided that at least 51% of the members approve the exercise.
Under the redevelopment model, a developer signs a development agreement with homeowners residing in these old structures.
The developer promises extra area to each of the flat owners after redevelopment. In exchange, the developer gets to utilize the remaining unused Floor Space Index (FSI) of the plot and build additional homes to sell at a premium in the open market.
For example, if there are 20 flats in a five-storeyed building and each flat is of 450 sq ft, the developer will sign agreement with the 20 owners and commit to give each of them a 500 sq ft flat in the redeveloped building.
However, the caveat here is that the developer will construct 40 flats of 500 sq ft and after giving 20 flats to the owners, he will sell the remaining in the open market and make a profit.
2 Dangerous buildings
The Maharashtra Housing and Area Development Authority (MHADA) in May 2024 issued a list of 20 residential buildings in South Mumbai that are extremely dangerous and required to be vacated immediately. Along with this, the Mumbai civic body, also known as Brihanmumbai Municipal Corporation (BMC), had declared a total of 188 dilapidated buildings as dangerous and issued notices to residents to vacate immediately.
If homeowners of a society building in Mumbai want to go in for redevelopment of the old structure, they should do their due diligence regarding the developer.
3 Financial wherewithal of the real estate developer
It is very important for flat owners of old housing societies to do their due diligence regarding the financial wherewithal of the developer. They should check whether the developer intends to self-fund the project or take a loan for it.
"It is always better to understand if the developer intends to self-fund the project or will there be bank borrowing. They should check the amount being borrowed from the bank. Higher the borrowing, more the risks," said Prakkash Rohira, an advocate, who handles real estate related cases at Bombay High Court.
4 Developer's conduct with other society members
A developer has to deal with the committee members of the society and often the elected redevelopment committee. It is due to this reason that the conduct of the real estate developer with other society members becomes important.
5 Viability of the project
If the housing society intends to demand additional area, which may not be viable for the real estate developer, "flat owners should not sign the deed at all, as it may eventually lead to the project getting stalled," advises Rohira.
Flat owners should discuss all modalities with the developer before handing over the project for redevelopment.
They should ask themselves these questions - What if the developer is unable to hand over the area agreed upon at the time of signing the agreement? What if the authorities decline to clear the development plans? Will the developer reimburse the buyers if the area that is redeveloped is lesser than their existing floor space? Will homebuyers have to pay if a larger unit is delivered to them after redevelopment? “All these issues should be discussed with the developer at the onset,” said legal experts.
6 Go for builders with redevelopment experience
Flat owners should keep in mind that redevelopment projects require specialized skill sets. It is different from constructing buildings on vacant land. "Flat owners should either go for branded developers or prefer someone local who has experience of working in a particular area and project. This will lead to projects getting delivered on time," explained Rohira.
7 Get legal experts on board
According to legal experts, housing societies going for redevelopment should get on board their own lawyers and architects rather than depend on experts hired by the developer.
"Developers often approach housing society members with a draft development agreement. They may propose that their lawyer would draft the agreement for which the buyers may not have to bear legal costs. This is the first warning bell. It is imperative that housing societies appoint a lawyer and architect to understand the minute details of the project and safeguard their interests,”Rohira added.
8 Rental compensation
Flat owners also get monthly rental compensation from developers for the period of redevelopment. Flat owners should confirm this amount with the developer. “The rental compensation should cover the entire period until the new building is ready for occupancy,’ said Keval Valambhia, Chief Operating Officer (COO) of MCHI-CREDAI, apex body of real estate developers in Mumbai and Maharashtra.
9 Amenities and specifications
According to developers, flat owners should ensure that the specifications of the new apartments are clearly mentioned in the agreement.
“The details of amenities and specifications should include the size of the apartment, the floor plan, and the quality of materials to be used. The flat owners should also verify the promised amenities and facilities in the new building, such as parking spaces, security systems, recreational areas, and other common facilities. These should be listed in the agreement to avoid future disputes,” Valambhia added.
10 Project timeline and approvals
Last but not the least, flat owners should get a detailed timeline from the developer, including start and completion dates of the project.
“After knowing the timelines and delay clauses, these should also be mentioned in the agreement for compensation in case of delays. The flat owners should also ensure that the developer has taken permissions required from multiple authorities, including RERA registration,” Valambhia added.
Source: hindustantimes.com
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