Property redevelopment: Dark clouds ahead

Eight months ago, there was hope that much of dilapidating Mumbai would get a facelift and be redeveloped. Today, the scenario is worrisome.
Thanks to the Adarsh building scam, no files for redevelopment are being cleared. The absurd (often collusive) application of discretion and permitting garage parking inside individual apartments even on higher floors, free of Floor Space Index (FSI) norms had to be cancelled once investigations into real estate scams were ordered by India’s courts.
As a result, tenants and owners who were moved out of their premises with a promise of being given back a better home after redevelopment, continue to be kept out, with no clear date for re-possession of their premises.
Many old buildings in urgent need for repairs remain precarious places of dwelling.
And the people caught in the midst of a paralysed government and angry households is the developer community.
DNA decided to call some of the best people in this business and discuss with them the causes behind this turbulence and try to  seek out solutions to this imbroglio. Among those who formed this “Conversations” panel were (in alphabetical order) Sunny Bijlani, director, Supreme Universal Pvt Ltd; Mayank Gandhi, from the Remaking of Mumbai Federation; Amar Kapoor, director, Urban Heights Realtors Pvt Ltd.; Chandresh Mehta, director, Rustomjee; Ramesh Prabhu, chairman, Maharashtra Societies Welfare Association; Shantanoo Rane, director, Red Brick Developers; and Prakash Shah, director, finance & business development, Hiranandani Constructions Pvt Ltd. Given below are excerpts from that discussion, which was moderated by DNA’s RN Bhaskar.

DNA: Six months ago, there was promise and hope with respect to redevelopment; now there is anger and exasperation. Let me begin by asking Mayank Gandhi to talk about a large redevelopment project just about to take off at Chira Bazar [in addition to one at Null Bazar] in South Mumbai. What made this cluster development move faster than other projects in the city?
Gandhi: Actually on July 26, 2005, when four buildings fell and about a 100 people died, we thought of this entire concept of redeveloping buildings on a cluster basis rather than on an individual basis. So we’ve been at it from 2005 and in 2007 we formed a not-for-profit organisation called the Remaking of Mumbai, headed by justice Bhagwati and Narayan Murthy and ex-municipal commissioner Girish Gokhale.

Considering there is a need for cluster development rather than individual development, we worked very closely with the government of Maharashtra, and we changed some of its policies. We have brought in the cluster development component in the new housing policy in 2007, and we were instrumental in some way in drafting the 33(9) the [section which deals with] cluster development scheme.

And because we were ambitious, we began working on a large area. Initially, we took 233 acres, which consisted of 2,200 buildings. Within that, we took a 30-acre piece, which consisted of 372 buildings. That is why we were the forerunners, and we have done a lot of work. We are working on the redevelopment of the Chira Bazaar area.  This involves purchase of properties and the consent of tenants; a letter of intent is to be issued to anyone who brings in 70% of either. Today, we have more than 80% consent of the tenants. So we have applied for the letter of intent, which has been approved by the high-powered committee. This will then go to the urban development ministry. Once they pass it, then the work can begin. We are looking at a time frame of around three months.

DNA [to Prabhu]: But is the urban development ministry [of Maharashtra state] working as well or as efficiently as before?  
Prabhu:  This is not yet taken up at a speed that is normally expected. But because of the Adarsh scam, everything in the department has come to a standstill. It is not working. I think a lot of policy changes are happening. But there is no stability. Mhada talks about one policy. Then they stop, and they want to become part of the development process. They want to become stakeholders in that.

Everyone looks at redevelopment from his own angle and everyone wants to make money out of this redevelopment process. I think the government is not very firm about any policy it takes. Mhada was earlier taking a premium and giving 2.5 FSI. Now, when this scheme is getting stabilised, it wants to change the rules. It does not want to accept the premium. It wants to be part of the development process.

FSI-free flower beds, water tanks, car parking spaces [many of which were patently irregular] are now being disallowed by the new commissioner.

So many changes are taking place that it is leading to total chaos and confusion and nobody knows what is happening. Flat owners or people of a housing society were told that they would benefit from 3 FSI  or 2.5 FSI. Builders promised to deliver flats [within a fixed time frame]. But the changes have prevented this work from being completed. So there is a lot of fear. Ultimately we cannot blame the builders but [must blame] the policy makers, who are very slow in taking a decision.

DNA: So, on the one hand, we have tremendous development. On the other hand, we have discovered that suddenly we are getting into difficulties. Now, given the scenario, what is the way ahead?
Rane: Change the CM!
Mehta: I think what is needed is a certain amount of consistency in the thought process. You cannot have changes of policy based on the whims and fancies of people. The entire process of policy making should be a thought-out process. If the government does not have the intellectual capital, it should involve professionals and take help from the outside.
Before they set out and announce the policy, it should be stress-tested. They have to figure out the way it works in various scenarios which the implementation of the policy may encounter. After having announced the policy and having put the implementation process in place, it is very unfair on the government’s part to make changes.

Of course, certain amount of mid-course correction is inevitable. But making sweeping changes and changing the very nature of the policy to the detriment of the stakeholders is not done.
So I think a certain amount of thought process has to be put in by the government. I think changing the CM is not the solution. But I think you need to change the entire place where the thinking comes from.
And it is wrong to keep saying that] developers are making too much money. What I have to say is, is it wrong to make money? Everyone is making money. You put up a policy for what it is worth. And if we have figured out a way of making money out of it, so be it. That is our job and that is why we are in business.
Kapoor: If you look at the overall scenario, real estate is still not recognised as an industry in our country, even though it constitutes a very high percentage of the GDP. There is no one authority, which represents real estate developers. If all of us feel like there is a policy matter, which we are not able to sort out, we should be able to go to one body, which represents the developers.

We want a strong body which has a clear thought process, which goes to the government and explains how it is the bureaucrats’ fault — or whoever’s fault — and says: “We are answerable to our tenants. We have committed to our tenants, saying we will give you a house within 22 months. Keeping this in mind, we need our approvals within that time period, and that is not happening at all”. We get stuck over here.

Bijlani: Few days ago, there was a small meeting with the [Mumbai] municipal commissioner, where we asked him what exactly the agenda was, what it is that you are planning to do, because we have no clarity. And he is apparently doing a good job. He wants to frame a policy that is the same for all. So he wants to make things fair, he wants fair play, which the entire industry is ready to accept. But at the same time, for that to happen, the government has to empower him.

Rane: Developers today are feelings like orphans. There is nobody to take care of us. We are being looked at as dacoits, smugglers, goons, etc. But eventually — whether it is on account of the government officials, politicians, or others — it is always the developer who suffers. You see any newspaper, and we are shocked to read that people think it is the developer who should go behind bars. Now why is that? That is because we are absolute orphans. We ourselves are to blame for that, because we are not a united body unfortunately, and the reason for this is business competition. That is one place where we ourselves should get organised.

Today, we are in no position to actually decide which path we are supposed to follow. We get scared to accept proposals, to answer our tenants, to whom we have already committed and then suddenly we do not know which committee will tomorrow come and sit on our heads.

Gandhi: I am not just worried about policy. I am more worried about the complete lack of understanding.

I will give you an example. The CM said he is going to auction the cluster development pieces, without understanding that these are private properties. How can the government sit down and auction that? It is a complete non-starter. Obviously, there is nobody in the government who has briefed him. How can you have a policy when you don’t have an understanding?

So it is going deeper than the policy, to the question: Does one understand the city? Just because you can auction Dharavi, which is owned by the government, it does not mean that you can do that with private properties. It is a complete lack of understanding. This makes me more afraid than the lack of policy.
Rane: There is also the question whether the CM was briefed or not for the CRZ [coastal regulatory zone] rules. There is a new policy, which has come from the Centre. And I am sure the Centre must have been briefed by all the intellectuals of the state of Maharashtra. Now this policy is in no way feasible for any developer. I am specifically taking about the 33/10 policy about slum redevelopment, joint venture, etc. In fact, the joint venture concept itself is absolutely unviable.
 

Bijlani: Take another aspect of the current CRZ policy. Currently, all the CRZ maps are made on the scale of 1:25,000,  Now this basic issue is delaying the process of approval for projects. Now the MoEF [the union ministry of environment and forests] wants a more zoomed-in map with a 1:4,000 scale. Only after that will approvals will be given for CRZ projects that are yet to be cleared.
The mapping institutes have said that they need 6-8 months to prepare this 1:4000 map. Unless and until that map is made, like a blueprint map, the MoEF will not clear the proposals. The MCZMA [Maharashtra Coastal Zone Management Authority] is helpless, because that is the notification that has come in from the MoEF.

Shah: Think of any country that has redeveloped itself almost entirely, and has become successful. The name I come up with is Singapore.

What it was 45 years ago, and what it is today is entirely different. It is the leadership team in the country which changed the housing policies, and all individuals who live in the country became happier because they got better houses.
What we require here is leadership. We should look at the Singapore model and work on that model. We have good developers in this country as well, who can make cities beautiful and they have done it. We are all doing a good job.  The government is also there.

Unfortunately, look at all the scams taking place in the country, everyone is scared. But take a look at a bureaucrat like Chandrashekar who changed Thane ultimately. And today Thane, which 10 to 20 years ago was a sleeping city, is like a palace city. So leadership can do everything.

We have to activate this leadership. We have to make sure that the leadership is independent of the government. It is not a CM who will become a leader, as he keeps changing every one or two years because of the scams. But someone who is an independent leader and can visualise and look at the city and make it beautiful, how to change CRZ rules, regulations and which have benefits for the country, the people, the government, developers, for everyone. That way, everyone benefits and no one is blamed.

Rane: I think if we look back to the early 90s — I was not a developer back then — there was a body called SRD (slum redevelopment), whose job was to take care of slum redevelopment. It used to restrict developers to a cap of 25% of profits. There was a lot of thought process and I don’t know who it was that spearheaded this, minister or bureaucrat, who changed the policy from SRD and made it a new body called SRA [slum rehabilitation authority], which removed the cap and today, no matter what we say, SRA has succeeded in removing a number of slums and has delivered a lot more than SRD did. As developers, we need to recognise that a good policy with independent authority can create a healthy change. The same could be true for CRZ as well.

Shah: There is another issue. Customer expectations are unlimited. I think overall some guidelines need to be made, some policy, which directs people that they can only expect so much from redevelopment.

Some things will be given, some things can’t. In our experience we have redeveloped two buildings and after finishing them, they want… You are stuck. You cannot go ahead. As a reputed developer, we have delivered the building, but a dispute comes up and the matter approaches a court of law. But it takes years to get issues resolved. For property and redevelopment related issues, there should be a separate court. Work cannot stop, and money cannot get stuck because of judicial delays. 
Mumbai needs redevelopment. There are 19,000 buildings as per the BMC. And human life is important. Tomorrow, if a building collapses and someone dies, that will be painful. In fact, the government will benefit by getting money for its further development if the city is redeveloped. Its citizens will have better houses, better living.  And developers should get money to build, for housing.  Some organisation — like the Housing Finance Commission — should give money for redevelopment as well.

Gandhi: There are a couple of points I want to make.  The first is about the CRZ policy. There was a CRZ policy, which did not allow construction in the CRZ-II area. We fought over it and said: “You should allow the old buildings to be redeveloped”. The government did not listen. So we went to Delhi and said: “You can stop development, but you cannot stop redevelopment”.
We made this a huge issue and I told Jairam Ramesh: “You guys are sitting in Delhi, where there is no coastline. You sit down, make a uniform policy for the entire country, in which there will be a virgin area in Kerala, and an urbanised area in Mumbai. It just doesn’t work”. With the mounting of pressure, the government relented, and we got 33/7 and 33/9, but said that 50% should be government owned. Again we fought. The government removed this stipulation. Today, as far as we are concerned, for 33/7 and 33/9 areas, there is a workable policy.

But what we did is that we had to guide the whole process from the beginning, from Delhi itself, form the policy and bring it right up to here. If we had also done the same for 33/10, we could have had some policy. These guys just don’t understand. The problem is understanding. I keep on repeating that.

Another point which is far more serious is infrastructure.  If you go to Nana Chowk, there are 50 towers that are coming up. Another 150 could be coming up soon. And not a single inch of road being increased or pipeline. Rajiv Gandhi in 1991 said Kolkata is dying. I can tell you Mumbai is dying, if this is the way it is going.
So this ridiculous policy, without any infrastructure coming up, is going to become the bane of this city. So we went to the cluster policy and said we should take the heart of Mumbai to at least 500-700 buildings as a cluster. And then cover all the 19,000 buildings in Mumbai, but as clusters.  The idea was to have each cluster covering at least 25 acres, so that infrastructure could be improved.  But now, even one acre can become a cluster. Can it be? I mean, where is the thought process and understanding? There is just no understanding of urban development, of how cities are built. Where  is the infrastructure, the connectivity, water, the parking, etc?  It is a ridiculous process of  redevelopment.

Shah: In fact, if you can have master planning for city development, you should do the same for redevelopment.

DNA: I agree with you. But there is another worry. The rains are expected soon. Some more buildings will collapse.  Some more people will die. What are you going to do?

Gandhi: 750 people have died due to collapses of buildings. In Israel, if five people die, they go to war. If a few Americans die in India, they will change their complete policy. We are right in the heart of the commercial and media capital of this country. And 750 people have died and we are still so insensitive to human life.
Bijlani: Today, each developer has a project under a totally different scheme. Each scheme has a different body and unit and that is the reason why everyone is not together on the same subject. The interest and the scheme are a different game for each developer and that is the reason why they do not speak in one voice. Since there is no single window clearance or one body that we can approach, everyone wants to approach separate bodies separately.
Mehta: I think what the government is doing is playing divide and rule with us.
So, you have a Greenfield project whose demand is different, you have an SRA project, which is a 33/10, which the ground realities are different, you have a slum redevelopment, a redevelopment project in the Mhada space in a 33/5, where the ground realities and the requirements are different.

As Sunny said, you have a plethora of committees and a high-rise committee, a civilisation committee, an environment committee, a statutory committee, a statutory board under Mhada and this number keeps on increasing every day. There is something that happens and the government decides to have one more committee and makes it that much more difficult for the developer to take approval. What it is doing is choking supply. This is where we talk about the huge disparity between people’s ability to buy real estate and our ability to sell it cheap. So this demand and supply gap gives rise to the prices we are talking about.

Rane: What you’ve been pinpointing again and again — and nobody wants to get into that space — as to why developers are not coming together is critically important.