Mumbai: Maharashtra’s housing authority has proposed a 20% increase in construction space for builders who take up redevelopment of residential projects developed by it, offering an incentive to real estate companies that have shunned such work because of differences over revenue sharing.

The Maharashtra Housing and Area Development Authority (MHADA) sent the proposal to the state government in the first week of March and hopes to receive approval soon, said a senior official at the agency who didn’t want to be named.

Under the proposal, the authority proposed increasing the floor space index (FSI) for redevelopment projects from 2.5 to 3, the official said. FSI indicates the basic permissible construction on any place—it is 1.5 for Mumbai and 1.33 for the suburbs, which means one can construct a house measuring 1,500 sq. ft in the island city and 1,333 sq. ft in the suburbs on a plot of 1,000 sq. ft.

In December 2008, MHADA unveiled a policy for redevelopment of buildings developed by it whereby builders could get additional FSI either by paying a premium of 40% on the ready reckoner price (used to levy stamp duty) or sharing houses built by using the additional FSI, with two-thirds going to the housing authority and one-third to the builder.

In September 2010, MHADA changed the policy and made the formula of flat sharing mandatory, which irked the builders. Since then, the state government has not received a single proposal for redevelopment and work in six residential colonies of MHADA, where redevelopment had begun, has come to a standstill.

Mumbai has 104 MHADA-built residential neighbourhoods comprising 225,000 flats. These buildings occupy 1,580 hectares of prime real estate. However, most of these buildings are 40-60 years old and in such a dilapidated condition that they have been declared dangerous for human occupation by the Municipal Corporation of Greater Mumbai.

Builders welcomed the policy change recommended by MHADA. “The government or private sector alone cannot meet the growing needs of the masses. We are always ready to partner with the government provided the entire transaction is transparent. It also requires comprehensive real estate reforms and a change in the official mindset," said Paras Gundecha, president at the lobby group Maharashtra Chamber of Housing Industry-Confederation of Real Estate Developers Associations of India.

“There will be more takers for redevelopment projects if we get better incentives, and the resulting efficiencies will be passed on to the customers," said Vipul Bansal, chief executive of DB Realty Ltd, adding that the company will be interested in more such projects if policy changes in favour of the developer.

DB Realty is currently managing four MHADA redevelopment projects.

“The government needs to give more incentive to attract developers as this is a high return but high-risk business," said Gaurav Gupta, director at Omkar Realtors and Developers Pvt. Ltd.

“Giving more FSI is a step in the right direction and it will make redevelopment more viable for the developer," said Ramesh Nair, managing director (West) at real estate consultant Jones Lang LaSalle India.

Compared with FSI limits of 15-18 in major cities such as Singapore, Hong Kong and New York, FSI in Mumbai is very low, he added.

But consumer protection groups are not convinced.

Ramesh Prabhu, chairman of the Maharashtra Housing Societies Welfare Association, said the real issue is “exaggerated promises" made by builders to the residents of these colonies.

“To win the projects, builders have promised apartments of 600 or 700 sq. ft to flat owners of 180 sq. ft and so on. Now they are finding that it is not possible to fulfil these promises, so they are making excuses. Hence, increasing FSI from 2.5 to 3 won’t solve any problem."