The market for the much sought after transferable development rights (TDR), which permit additional construction rights on a given plot of land, is bracing for a major change in the country’s commercial capital. To break the alleged cartelisation of the TDR by a powerful coterie of developers, Mumbai’s new Development Plan allows utilisation of the full development potential of a plot without the loading of the TDR. The government will now permit a free interchange between additional floor space index (FSI), which is available to builders upon payment of a premium to the municipality, and the TDR component.
“The utilisation of additional FSI on payment of premium and TDR can be utilised in any combination subject to the maximum permissible FSI limit prescribed for a plot,” says the new Development Plan, which is expected to be sanctioned by the government in the next few days. In Mumbai’s construction industry, where a few hundred square meters of additional construction space can translate into crores of rupees, TDR certificates are the equivalent of blue-chip stocks. These certificates are issued to private landowners or developers as compensation for land surrendered to the municipality for developing a public reservation or road widening, or when they agree to rehouse slum dwellers or project-affected persons free-of-cost.
Another tool for generating TDR is when an owner cannot exploit the full development potential of his plot due to heritage restrictions. TDR can be used on another location or even sold to another developer. At present, a small but powerful cartel of slum redevelopers control the TDR market, having cornered most of the slum TDR available in the market. Official records reveal that slum TDR at present accounts for 65 per cent of all the TDR that is available in the market. There have been long-standing complaints that the cartel artificially spikes TDR rates in a bid to retain their control over the market, and has put the redevelopment of several properties in jeopardy in the past.
While Maharashtra government’s previous efforts to check this practice haven’t yielded the desired result, senior officials feel that permitting premium FSI and the TDR component on a plot to be interchanged will help control the TDR rates. “If there is a sudden spike in the TDR rates, builders and land developers will now have the option of utilising premium FSI instead of the admissible TDR,” said a senior official. Alternatively, additional FSI on premium payment, if found expensive, can be entirely replaced by the TDR component. In other words, once the new Development Plan kicks in, builders would be able to utilise the additional FSI either by paying premium to the municipality or purchasing TDR from the market, or both. As reported previously by The Indian Express, the government plans to raise the permissible FSI limit in the island city of Mumbai to three, while that in the suburbs would be capped around 2.5.
What is TDR?
TDR certificates are tradeable additional development rights on a plot of land. According to industry players, the TDR industry is worth over Rs 5,000 crore. TDR is issued to private landowners or developers as compensation of land surrendered to the municipality for a public reservation or road widening, or when they agree to rehouse slum dwellers or project-affected person on his land free-of-cost. Another tool for generating TDR is when an owner cannot exploit the full development potential of his plot of a land due to heritage restrictions. A builder/owner can transfer the permissible built-up area to another location, or even sell it to another developer. At present, the TDR sale rates hover around the Rs 5,000 per sq feet mark.
How will making TDR and extra FSI available on payment of a premium affect the housing industry?
Let’s take the development of an island city plot as an example. The zonal (basic) FSI available free-of-cost in the island city is 1.33. Depending on the width of the road in front of the plot, the maximum admissible TDR that can be availed over and above this zonal FSI is also proposed to be raised to 0.83, while another 0.84 can be availed as additional FSI through premium payment. But the clause regarding the ‘option to use the premium FSI and TDR in any combination’ within the limit of 3 FSI will allow the builders to replace either option with another, after utilising the free zonal FSI. This means builders who find the speculative TDR rates excessively high may opt to purchase FSI by paying the premium, altering the demand-supply balance of the current TDR market.