Which is better for your building? Self-redevelopment or though builder for single or multiple housing societies

In the previous post “Redevelopment of Housing Society’s building: How to get down into task”, we have discussed things to know before entering into a redevelopment agreement with the builders and important conditions to be incorporated in the agreement. Many of my readers have asked me about my opinion about which option is better for societies in Mumbai, whether to go for ‘self-redevelopment’ or selecting a builder to construct the new building/s. There are also queries about the advantages of amalgamation of multiple societies in the locality for the redevelopment of their buildings by a single developer who can build high-rise towers and offer flats with multiple facilities to the flat owners.  

For the redevelopment of society’s buildings, the land and building/s should be in the Society’s name. Without conveyance of property in its name and the same is noted in revenue records and property cards, a cooperative housing society cannot proceed further with a redevelopment project in any of the above-mentioned options.

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.

Let us discuss here which the right choice among multiple options is.

Self-redevelopment:

In self-redevelopment of society’s buildings, flat owners could expect up to 40-50 percent increase in carpet area compared to 15-20 percent through the traditional process of builder-led redevelopment. 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. The disadvantage is 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. Therefore, 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 on 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. Moreover, members of the society have to make their own arrangements for the temporary arrangement of accommodation (No rent payable by the contractor undertaking the construction). Further, each member of the society shall arrange margin money (society’s contribution for the project) if the society is starving of funds for procuring the loan from financial institutions. Banks will insist on no dues to the society from all the flat owners for releasing the loan. The society has to obtain the written consent of 100 percent of the members, to proceed with self-redevelopment and mortgaging the property of the housing society to the Bank, for the purpose of availing of the loan. There will be fear among members that what happens if the project is not completed in time. This is because if the society is not able to repay the loan as per schedule, the entire property will be auctioned by the lender to recover their dues including interest payable on the loan. (To know more about self-redevelopment read: benefits, disadvantages and the process of self redevelopment)

Redevelopment of buildings jointly by multiple societies:

Though many problems are common for redevelopment projects of multiple societies, the redevelopment project of multiple societies is the most problematic process with a lot of uncertainties and every possible dispute. As the problems are multiple, all the societies involved in the combined redevelopment of their building may face every possible dispute and the chances of the redevelopment project can get held up if caught in the middle of various complications. (to know more on joint redevelopment of multiple societies buildings,read following post:

Is it a good idea to go for redevelopment of your buildings jointly with multiple societies

Conclusions: Seeing the intricacies included in the process self redevelopment has its own set of challenges that need to be considered before making the final decision. Getting consensus amongst members at the beginning and then at various stages of the project is a complex task in redevelopment projects by multi-societies. In the case of the builder-led redevelopment project, the managing committee has to keep monitoring the project development as per Government norms and better standards; it is comparatively easier for the managing committee to coordinate with the builder for a society that goes solo for redevelopment. They need not personally approach various Government departments and do not have tension for meeting financial obligations towards the cost of construction and rent payable on temporary accommodation provided to the members. Society does not have tension about selling the saleable flats for recovering the project cost. No need to approach various government departments for approval of the project. No need to prepare tax returns related to the project etc.

Read the below post to know about procedures to be adapted for selecting a reliable builder/developer for the redevelopment project, and important conditions to be included while entering into a redevelopment agreement with the builder.