Mumbai: The Maharashtra government has approved a revenue-sharing model between developers and its housing authority in a bid to encourage more builders to redevelop housing colonies and unlock prime real estate in Mumbai while taking into consideration market realities.

The new policy could revive the market for redeveloping the many dilapidated housing colonies built by the Maharashtra Housing and Area Development Authority, or Mhada, in Mumbai and its suburbs, after an earlier apartment-sharing formula put off builders from such projects.

Mumbai has 104 Mhada-built residential colonies, covering 1,560 hectares and comprising 225,000 flats. Most of these buildings are 40-60 years old and many have been declared dangerous for human occupation by the Municipal Corporation of Greater Mumbai.

The state government issued a gazette notification on 8 October to approve the new redevelopment policy that links revenue-sharing to the construction cost.

FSI indicates the basic permissible construction on any place—it is 1.5 for Mumbai and 1.33 for the city’s suburbs, which means a developer can construct a house measuring 1,500 sq. ft. in the island city on a plot of 1,000 sq. ft., and up to 1,333 sq.ft. in the suburbs.

In the new policy, incentive FSI—construction rights permitted above the basic FSI—also has been linked to the ratio between construction cost and land cost. The lower the construction-to-land cost ratio, the higher will be the incentive FSI. For example, if the ratio is 1:2, the builder could get an incentive FSI of 70%. But if the ratio is 1:6 or more, the builder would get an incentive FSI of 40%.

The real estate industry has obviously welcomed the changes in the revenue-sharing formula, but political parties and housing rights activists say the new policy is biased towards builders and ignores the concerns of those living in Mhada colonies.

The Maharashtra government’s redevelopment policy has undergone many changes in the past few years.

In December 2008, Mhada introduced a redevelopment policy allowing builders 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 67% of the apartments going to the housing authority and the remaining to the builder.

Mhada changed the policy in September 2010 and made the formula of apartment-sharing mandatory, which irked builders. Since then, Mhada has not received a single proposal for redevelopment and work in its six residential colonies where redevelopment had begun came to a standstill.

“It is definitely a win-win situation for all as it makes the projects viable and the benefits can be shared with Mhada and the occupants." said Vimal Shah, president at lobby group Maharashtra Chamber of Housing Industry-Confederation of Real Estate Developers Associations of India (MCHI-CREDAI). “It is a model that is more appealing to builders and hence ensures project viability," said Pankaj Kapoor, managing director at real estate research company, Liases Foras Real Estate Rating and Research Pvt. Ltd.

Kapoor, however, added that the new scheme could also be counter productive without efficient monitoring by Mhada as the incentives linked to the higher cost of construction might make builders inflate costs.

The Shiv Sena party’s leader in the state assembly, Subhash Desai, said, “The new policy just talks about sharing of revenue between Mhada and builder, but it does not say anything about how the original residents of Mhada building would benefit from the higher FSI which is being offered for redevelopment schemes."

Ramesh Prabhu, chairman of the Maharashtra Housing Societies Welfare Association, complained about the smaller apartment sizes under the new policy. “We had suggested that the government should give original flat holders in Mhada colonies a 484 sq.ft. apartment but it seems under the new policy, the government has made no change to its earlier policy of offering only 300 sq.ft. apartments to the original owners."

If the state government could make it mandatory for builders to give 300 sq.ft. apartments to tenants from chawls that are going for redevelopment, why can’t it give more space to those who own the apartments, asked Prabhu.

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