Ex-BMC chief Subodh Kumar favours changes in DCR for seamless development

Thursday, 26 December 2013 - 7:39am IST | Place: Mumbai | Agency: DNA
Subodh Kumar suggests monetising schemes to attract developers, compensating landowners and occupants to avoid disputes.

Former municipal commissioner Subodh Kumar sent a detailed note to the state urban development department over a year ago containing game-changing proposals, which if implemented will result in a win-win situation for citizens, the BMC and the state government.

They would consequently change the face of Mumbai for the better. In the first instalment published in the dna on Wednesday, we focused on the proposed changes in the transfer of development rights (TDR). In this the second and last instalment, the emphasis is on the changes in the Development Control Rules (DCR) that need to be made to ensure balanced development of the city.

Kumar has suggested changes in DCR 33(7), which deals with redevelopment of cessed buildings in the island city, DC 33(9) relating to cluster development and DC (10) that deals with slum redevelopment.

Amendments to DCR 33(7)
Under the scheme, the developer is required to provide free houses to existing occupants and is granted 50% to 70% (depending on the number of plots amalgamated) of the floor space index (FSI) consumed in rehabilitation of existing occupants as incentive FSI for the free sale component. The scheme lacks monetization, as the quantum of incentive FSI is independent of the location of the cessed buildings, while the value of real estate varies widely according to location.

For example, the value of real estate in the Fort area is (Rs52,800 to Rs2,38,700 per square metre) about three times that in Parel-Sewri (Rs44,000 to Rs96,700 excluding the east side of the Harbour Line), but the quantum of incentive FSI is the same in both places, even though the cost incurred on rehabilitation (except cost of transit) is similar. This makes projects unviable at some locations while exorbitant profit margins are available for developers at some other locations. In the latter case, existing occupants demand a bigger area in the rehab accommodation leading to delays and even litigation which slows down the pace of redevelopment; canvassing of administrative and political patronage by the developer; intimidation of occupants and forcible eviction.

Need to monetise schemes
It is, therefore, necessary to monetise the scheme. It can be done by providing incentive FSI based on the cost estimate of the rehab component, transit accommodation and buildable amenities, taking into account sufficient profit margins and considering various payouts such as for land and capitalized fund for maintenance. However, the working should be simple, deterministic and easy to understand and implement.

The formula suggested by Kumar enables calculation of incentive FSI at the time of granting of approval. The land rate would be as per the current stamp duty ready reckoner (SDRR) at the time of approval. However, the calculation of corpus amount to be paid to the occupant and the land value to the landowners, the SDRR of the year in which payment is made would be taken into account. This is necessary since the quantum of incentive FSI on these two counts would be calculated based on SDRR rates prevailing at the time of granting of approval. Had this incentive FSI been sanctioned later, at the time of payment to occupants / landowners, the later SDRR would have been used, resulting in lower quantum of incentive FSI. Accordingly, the developer would be obliged to give corpus to the occupants at the rate of 5% of the land rate as per current SDRR at the time of payment, multiplied by the rehab area.

Kumar has stated that since incentive FSI is being allowed to the extent of 25% of land potential to the developer, the landowner should be compensated by the developer, who should pay 25% of land value as per SDRR to obtain his no-objection certificate (NOC) for development and transfer of land to the co-operative society after redevelopment.

Twenty-five per cent of SDRR shall suffice as the lands are not open land and are encumbered. If any landowner is unwilling to give NOC on these terms, his land shall be acquired by MHADA by paying 100 times the monthly rent, if necessary by amending the MHADA Act suitably, to enable acquisition of land for redevelopment/ urban renewal projects to be undertaken by MHADA, or by anyone else in the city.

Some distinct advantages
Kumar has noted that there are distinct advantages in adopting the above incentive formula.

Some of these advantages are:
At present, getting the owner’s NOC/ consent is the biggest stumbling block in taking up schemes under 33(7) and more particularly 33(9). Due to this, 33(9) schemes have not really taken off. Making a provision for payment of defined compensation to landlords would improve the implementability of the scheme.

(2) Today, at lower land value locations, such redevelopment schemes are not viable. Now that the incentive will be improved due to indexing, these schemes will become viable.

(3) Corpus fund to rehab societies has been so prescribed that it would meet their cost of maintenance (property tax liability) for about 10 years. This will avoid prolonged and lengthy negotiations between the developer and a large number of tenants/ occupants leading to disputes and inordinate delays. It will help mobilization of schemes on larger areas giving a fillip to cluster development. This will in effect also create better urban fabric, better living conditions and improved environment.

(4) Schemes would get monetized, eliminating highly excessive gains at high-value locations, which caused division among occupants who preferred different developers, leading to delays and complaints after one group succeeded in getting 70% consent.

(5) The incentive FSI formula takes into consideration the transit costs and also various payments required to be made. This will bring more transparency and speedy implementation of redevelopment schemes.

Improving incentive FSI
Schemes under DCR 33(7) have been successful where the SDRR 2012 land rates are about Rs30,000 or more. In the proposed formula, the incentive FSI where land rates are Rs30,000 per sq m works out to 86% (assuming an FSI of 2 for rehab. In case FSI required for rehab is less, the percentage of incentive FSI would improve further) and will be even higher when land rates are less. Where land rates are Rs1 lakh, Rs2 lakh and Rs3 lakh, the incentive FSI works out to 43%, 32.56% and 28.92% respectively. The proposed formula makes redevelopment schemes even more attractive at lower value locations and reduces the incentive at very high-value locations, making the scheme viable and equitable at all locations.

In 33(7) projects, FSI shall be granted as required for rehab and incentive. No minimum FSI needs to be prescribed under 33(7). In case rehab plus incentive FSI is less than even 2.66, the developer would get lesser FSI under 33(7) and for the balance potential (out of 2.66) he would be eligible to buy TDR. In case rehab plus incentive FSI exceeds 4, in situ FSI will be restricted to 4 or rehab FSI, whichever is higher, and the balance could be granted in the form of TDR. This will reduce congestion in rehab projects. TDR generated under 33(7) schemes can be easily consumed by non-cessed properties in the city, or properties in the suburbs, as provided under DCR 34. The developer will not be at any disadvantage as TDR, if used at another place, will increase/ decrease the area at the place of utilization according to relative rates of SDRR.

Kumar has noted that currently a minimum FSI of 3 is allowed in all 33(7) projects, even if rehab plus incentive FSI adds up to less than 3. The difference is shared between MHADA and the developer in the prescribed ratio. Since it is proposed to restrict FSI as required for rehab plus incentive only, MHADA will lose the benefit of share that it used to get in some cases. With this in view, it is proposed that 5% of the additional development cess as provided in Appendix-III of DCR 33(7) may be given to MHADA. It would compensate MHADA adequately for the share it received under the current provisions.

Modifying reservation
Currently, under the 33(7) scheme there is a relaxation in the reservation, in as much as the buildable reservation to be given to the Municipal Corporation of Greater Mumbai (MCGM) to the extent of 25% of the reservation area, or 15% of the scheme area, whichever is less, and non-buildable reservation to the extent of 1/3rd this policy for smaller plots, but this must be modified if the 33(7) scheme is to be taken up in areas of more than one acre.

It is suggested that 25% built-up reservation be restricted only up to 4,000 sq m and for plots larger than that 50% built-up area for buildable reservation shall be handed over to the MCGM free of cost. The developer shall be granted construction TDR to be used in situ (within 4 FSI) or in the form of TDR in terms of the following suggestion.

In case of non-buildable reservation, the provision should be changed to provide for 1/3rd, whichever is more, but not exceeding the area of reservation.

Amendments to DCR 33(9)
DCR 33(9) should be applicable if area of redevelopment is at least five acres (against one acre at present). Cluster redevelopment should be big enough to enable widening of roads on its periphery and those within, as well as retention of development plan reservations. This is not possible if the area is less than five acres.

Since managing a 33(9) project with a large number of occupants is more difficult and the implementation period is long and involves higher interest costs, the incentive FSI should be more liberal as compared to that in 33(7) cases. Such incentive FSI also needs to take into consideration the payment of compensation to the landowners under the scheme, as well as the provision for corpus fund required for maintenance cost for 10 years for the rehabilitation component area. Thus, the same formula for incentive FSI as proposed for DCR 33(7) can be used for 33(9) scheme with an enhanced factor of 0.10 for the corpus fund [against 0.05 in 33(7)] and enhanced factor of 1.50 for the rehab component area [against 1.25 in 33(7)] to account for higher costs and to make 33(9) projects (i.e. cluster development) more attractive.

Though reservations under 33(9) cannot be deleted, the area of buildable amenities has been considered for computation of incentive FSI, thereby removing the major lacunae in the existing 33(9) scheme.

Kumar has observed that there is no need to give a uniform FSI of 4 in all 33(9) cases. Since it is an area development scheme on a minimum of five acres, it would be possible to utilize higher FSI in situ without creating congestion. Further, at present an FSI of 4 is allowed even if the rehab plus incentive FSI required is less than 4, and in such cases the constructed area out of the balance FSI is shared between developers, the MCGM and MHADA. This does not help the city in any way, since area to be received by MCGM, or MHADA is rather small.

Since it is difficult to guard and manage few scattered tenements at a number of locations, invariably this share is allowed to be retained by the developer by recovering market value. It would be more appropriate not to allow FSI more than required for redevelopment (rehab plus free sale) and where such requirement exceeds 4, to allow whatever is needed without any cap [as was hitherto done in the case of redevelopment under DCR 33(7)].

MHADA can be compensated by granting 5% of the additional development cess collected as under the provisions of clause (9) of Appendix-IIIA of DCR 33(9).

Reservations under 33(9) are not allowed to be diluted and rightly so. However, under the current scheme these are required to be given by the developer free of cost to MCGM, making the 33(9) project less attractive compared to 33(7). It has been remedied by granting construction TDR, to be used in situ, on the built amenities required to be given to MCGM free of cost under the 33(9) projects. Kumar has also suggested guidelines for working out incentive FSI under 33(9).

Amendments to DCR 33(10)
Under this scheme, a developer has to provide free houses to slum dwellers and is allowed free sale in situ FSI equal to 100% of rehab FSI in the suburbs and 75% of rehab FSI in the city. This results in some slum redevelopment proposals becoming unviable and some others being exorbitantly profitable, where slum densities are low and real estate prices are high. It would be advisable to make the scheme equally viable and attractive at all slum locations.

The provision of incentive FSI made for cluster redevelopment under DCR 33(9), by taking into consideration the area of rehabilitation as also the various payments to be made by the owners/ developers would give sufficient incentive.

Under existing rules, 100% incentive FSI is allowed in the suburbs. In the suburbs, slum redevelopment schemes have been successfully implemented in areas where current SDRR land rates vary from Rs18,000 to Rs1,70,000 per sq m. The formula proposed would result in 100% incentive FSI where current SDRR land rates are Rs29,000 per sq m. (Assuming rehab FSI is 2. In case FSI required for rehab is less, incentive FSI percentage will improve further.) It will be more than 100% at lower value locations. Where the SDRR rate is Rs20,000 per sq m, the incentive FSI percentage works out to 137%. However, the incentive FSI percentage will reduce at higher value locations. The incentive FSI percentage works out to 65%, 41% and 33.5%, where SDRR 2012 land rates are Rs50,000, Rs1,00,000 and Rs1,50,000 per sq m respectively.

Under existing rules, 75% incentive FSI is allowed in the island city. In the island city, slum development schemes have been successfully implemented in areas where the current SDRR land rates vary from Rs17,000 to Rs1,65,000 per sq m. The formula proposed gives incentive FSI of 75% where the current SDRR land rates are Rs49,000 per sq m. At lower value locations the incentive FSI will improve beyond 75%. Where the current SDRR land rate is Rs20,000 per sq m the incentive FSI would be 152%. At higher value locations of Rs75,000, Rs1,00,000 and Rs1,50,000 per sq m the incentive FSI works out to 56%, 47% and 39% respectively. The new formula rationalizes the scheme and makes it viable and equitable in all slum locations. Kumar has stated that there is a need to amend clause 3.11 of appendix IV of DCR 330(10). The scheme, as pointed out earlier, provides unconscionable gains at present.

If a developer volunteers to construct transit tenements on his own land and hands over land and transit tenements free of cost to the project implementing authority, he is given TDR for land as per zonal FSI and at 100% for constructed area (at 133% of the built-up area in difficult areas).

The scheme may be modified by allowing TDR at 1.30 times the plot potential against land and the TDR for built-up area be calculated as follows.

The cost of construction of built-up area as well as land rate per sq m will be taken as per SDRR of the year when area is handed over to the authority. TDR for construction shall be allowed as per a recommended formula that factors in construction TDR, cost of construction per sq m, etc.

Kumar has noted that the work on the revision of the development plan for Greater Mumbai is already taken in hand by MCGM and the consultants have already been appointed for this work.

The entire DCR 1991 will have to be reviewed in totality and will be considered for revision as an important part of the revision of the development plan. As this exercise will take considerable study and time, it is necessary to take immediate steps in respect of certain provisions on a priority basis, as already brought out, to enable immediate effect. Hence, these amendments have been proposed.

As these amendments are required to be implemented expeditiously, it is requested that the government issue suitable directives, so as to give effect to the above amendments and to take expeditious action under section 37 of the Maharashtra Regional and Town Planning Act, 1966, Kumar has observed.

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