Self-redevelopment of housing society’s building: Benefits, disadvantage, and process explained

There are several things to keep in mind while dealing with self redevelopment of a building, out of which conveyance of property in the name of the society is most important. If the conveyance is not executed in favour of the Society, the Society does not have legal rights or ownership of the land on which the Society’s building stands. If the legal title of the land and building is not in the name of the society, it is not possible for the society to take up redevelopment projects of the building at some stage. Even for using additional FSI or for carrying major repairs, Municipal authorities will insist on NOC from the Landowner of the building.

Traditionally, the housing societies in Mumbai approach a builder and enter into an agreement with him for the redevelopment of the society’s building/s. This is known as builder-led redevelopment. In case the redevelopment work is undertaken by the society itself, through a contractor with the supervision of its members, it is known as self-redevelopment.

 In September 2019; the Maharashtra government introduced the self-redevelopment scheme for co-operative housing societies with a Government Resolution (GR). Under the scheme, the co-operative housing societies in Maharashtra are permitted to redevelop their building, if the building is more than 30 years old. In case the housing society owns more than one building of different ages, the society can opt for self-redevelopment only for the building which has been completed for 30 years. The Maharashtra Housing and Area Development Authority (MHADA) is the single window supervising authority for the redevelopment scheme. Under Government Resolution (GR), MHADA is also required to create a panel of architects, project management consultants, and contractors, to provide choices to the housing society, to select the requisite professionals needed for self-redevelopment. Once the architect gets the building plan sanctioned by the municipal corporation, the society has to pay the premium fee. The society also needs to maintain accounts, income tax, and GST returns. They have to comply and register under the RERA act if they plan to build additional flats for sales.

Benefits of self-redevelopment:

With the developer removed from the process, there would be no risk of fraud, delayed construction, or loss of area; in fact, residents could expect up to 40-50 percent increase in carpet area compared to 15-20 percent through the traditional process. In case the housing society undertakes redevelopment of the building itself, the society shall be entitled to an extra FSI of 10%, over and above what it is entitled to under the development regulations of the area. Even for Transfer of Development Rights (TDR), the charges would be 50% of the normal charges payable by the society and get extra FSI at a discount rate. No stamp duty is payable by the existing flat owners in respect of new flats allotted to them in the new building. For the additional flats that are being made available to the existing members of the society under the Pradhan Mantri Awas Yojana, the stamp duty shall be restricted to Rs 1,000 only, per flat. The cap on stamp duty will be applicable, even if a member is allotted a higher area than what he held previously. Third parties who have purchased the flats from the society, the stamp duty will have to be paid as per the stamp duty reckoner rates. Additionally, the district central cooperative banks (DCCBs) provide loans to societies at relatively lower interest rates compared to the interest rates offered to developers.

Disadvantages of self-redevelopment:

Self Redevelopment has its own set of challenges that need to be considered before making the final decision. Redevelopment of any property requires approval from many departments and government authorities. There are almost 55-60 clearances required for such projects, including NOCs from the coastal regulation zone, traffic, fire, defense, aviation, and other authorities, which can be very time-consuming. People who take initiative in self-redevelopment must have enough time, competence, and inclination to manage a big self redevelopment project. They shall be able to manage multiple experts at various intervals of time and the required coordination within them. The managing committee/ committee formed to monitor the project shall also keep a tab of the project development as per Government norms and better standards. To sell the saleable flats for recovering the project cost, accounting, preparing IT /GST returns, and filing them in time is another major task. Unlike in the cases of builder-led redevelopment projects where the builder pays the rent for temporary accommodation, in the case of self redevelopment, the flat owners have to pay rent from their pockets.

The availability of finance from banks and HFC are not easy. In September 2020, the Reserve Bank of India (RBI) refused permission to Maharashtra’s state and district central co-operative banks (DCCBs) to finance self-redevelopment of co-operative housing societies, stating that ‘such projects would fall under the category of commercial real estate, and hence, outside the banks’ primary purview of lending for activities related to agriculture and rural development. However, RBI has now (notification of Febraury 2021) included co-operative housing societies in the list of eligible borrowers for constructions of flats. Hence, no rule stops them borrow from financial institutions. Still, the problem is these institutions are apprehensive about lending to housing societies. This is because they are not self-assured in case of default who will repay their loan when the society is starving of funds. In case of procuring loans from Banks/HFCs, they will insist on the business address and address of native places of all the members of society along with their Aadhaar card and PAN cards. The members will also have to furnish copies of income tax returns (ITRs) and salary slips in case they are not filing their ITRs. The society has to submit copies of agreements made with the appointed legal advisors, project management consultants, chartered accountants, etc. and feasibility report prepared by the Society’s architect which should contain the existing building plan, floor space index, size of existing units, TDR, fungible FSI (Fungible Floor Space Index (FSI) is the additional floor area developed by the builder over and above the FSI limit set by the government), and total cost involved in the project’s execution. The report will also list the possibility of any additional development as a sale component.

Before approaching the bank for funding, the borrower society has to obtain the written consent of 100 percent of the members, to proceed with self-redevelopment, and for mortgaging the property of the housing society to the Bank, for the purpose of availing of the loan. It is a tough job to convince all the members of the society’s project to be abandoned for some reason what happens to their property when the building is completely demolished and who will repay the bank loan with interest. The society shall arrange for the society’s part of the finance and make funds available for the entire project through bank finance. The society has to pass a resolution in the special general body meeting and forward the same to the deputy registrar of cooperative societies. The acknowledgment of the resolution, as submitted to the deputy registrar, has to be attached with the application form prescribed by the bank, along with other documents like registration certificate, updated bylaws of the society, audited financial statements for the last three years, list of committee members, conveyance deed, the original plan of the building, copy of property card,7/12 extract, etc accompanied with a copy of project report, detailed budget of proposed redevelopment and copies approval obtained from various authorities.

Although, the leadership of the society which is ready to accept the challenge with wrong/misguided perceptions about project, weak, inexperienced /incompetent managing Committee, absence of experienced leadership without having full knowledge, incapable of monitoring the project at every stage of the project, vested interest of committee members, can cause disaster to the life of the members of the society. To know about the builder-led redevelopment project read the following post.

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