Mumbai real estate: Spike in Slum TDR sends real estate market into a tizzy | Mumbai news


Mumbai: The real estate market is reeling from a sharp spike in Slum TDR rates, which is impacting their profit margins and sending construction timelines of ongoing projects for a toss. According to industry executives, the TDR in Mulund has shot up from 3,500 per sq ft six months ago to 6,000 currently. In Borivali, the rate has increased from 3,000 per sq ft to 5,700 in the last six months.

Mumbai, India - Sept. 5, 2023: Arial view of Infrastructural development at Sath Raasta, Mahalaxmi, in Mumbai, India, on Tuesday, September 5, 2023. (Photo by Anshuman Poyrekar/ Hindustan Times) (Hindustan Times)
Mumbai, India – Sept. 5, 2023: Arial view of Infrastructural development at Sath Raasta, Mahalaxmi, in Mumbai, India, on Tuesday, September 5, 2023. (Photo by Anshuman Poyrekar/ Hindustan Times) (Hindustan Times)

TDR, or transferable development rights, refers to rights that enable real estate firms to develop over and above the permitted floor space index (FSI) — the maximum amount of construction allowed on a plot of land relative to its size.

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With the general elections underway, followed by the state elections later this year, most builders are expediting their activities to avoid potential challenges in the future. This is resulting in a surge in demand for TDR, according to Sanjay Daga, founder and CEO of real estate advisory firm Anex Advisory.

The real estate market is in a tizzy right now. Construction costs are escalating, execution of projects is getting delayed and meeting Real Estate (Regulation and Development) Act or RERA deadlines is becoming difficult for builders. “Ultimately, all cost escalation will have to be transferred to the home buyers,” said Grishma Savla, director of real estate advisory firm Integrated Spaces.

Even though 30,000 sq m of fresh TDR has been released in the market in the last 15 days to meet the ongoing acute shortage, there are no takers. No developer wants to risk buying TDR at double the rate and disturb their estimated profit margins. Most are waiting it out if they can, while some are left with no choice but to buy TDR at inflated rates to meet customer commitments and RERA deadlines.

Take the case of Paradigm Realty. Four months ago, its redevelopment project in Santacruz West, Artteza, was impacted because of an acute shortage of TDR in the market. “We were left with no choice [but to buy TDR at inflated rates] because we were committed to meeting our customer deadline, which is 2024 year-end. After weighing the pros and cons, we decided to take a hit of 10%-15% in our estimated profit margins,” said Parth Mehta, chairman and managing director of Paradigm Realty.

H Rishabraj Group, which has several redevelopment projects underway in the western suburbs, is in the same boat. When the company submitted its Borivali and Goregaon projects for approval eight months ago, the TDR rate was 50%-55% of the ready reckoner (RR) rate, which is the standard value of a property set by the government based on which property transactions take place. However, at the time of purchase last month, the company ended up paying 120% of the RR rate.

“We had no choice because the projects have to be completed on time. If we had waited for the rates to stabilise we would have ended up losing money because our ongoing transit rents to residents would have resulted in cost escalation. Plus, investments have been made and we are paying interest on bank loans. Purchasing TDR made more sense even though it has killed the financial feasibility of our two projects,” said, Harrish Jain, director, H Rishabraj Group.

On the other hand, Chintan Sheth, chairman and managing director of Sheth Realty, has opted to postpone purchasing TDR for its upcoming two-acre project in Mulund given its scale and anticipated completion timeline of four years. “I am not under pressure to maximise FSI immediately. I am keen to hold on for the market rates to reach a more stable level,” he said.

Developers are urging the government to step in and control the situation

The recent release of 30,000 sq m of TDR is not enough to stem the current supply shortage in the market. It will not suffice for a city like Mumbai where over 5,000 redevelopment projects are currently underway and TDR gets absorbed quickly. Developers are urging the government to step in and control the situation.

“The demand is high, and we need at least five to six times of what has been released recently,” said Bhushan Nemlekar, director of developer Sumit Woods. “The gap between supply and demand is huge. The government must take some proactive steps to scale the supply and rationalise the rates.”

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Due to the high demand, some cartelisation is also taking place in the market, with a few suppliers of TDR controlling the prices, claimed Paradigm Realty’s Mehta. However, Rushi Mehta, joint secretary of developers’ association CREDAI-MCHI, which has several slum rehabilitation (SR) projects underway and is a regular generator/supplier of TDR, is quick to counter this allegation.

“We (developers) prefer not to opt for the TDR generation option in our SR schemes because the cost of generating TDR is higher than what we stand to earn from its sale. Our first choice is always to consume the FSI in situ by constructing and selling offices and flats rather than generating TDR in lieu thereof. This works out more lucrative for us,” he said. As per government rules, it is mandatory for redevelopment projects, especially the small standalone ones, to consume a minimum of 20% of slum TDR in their projects.

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As a fallout of the current TDR scenario, developers launching new redevelopment projects in Mumbai are now exploring other options to circumvent the purchase of TDR. According to Integrated Spaces’ Savla, builders are migrating to other options like permanent transit camps. Here, instead of purchasing TDR, the developer constructs permanent transit accommodation for the government free of cost in lieu of extra FSI. Another option is cluster development, where multiple plots come together under one regulation.

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The volatility in the TDR market is extremely unhealthy for the market from the long-term perspective, said Harshul Savla, managing partner, M Realty.


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