Property prices are set to come down, with the state deciding to increase its share in the Transfer of Development Rights (TDRs) market from 0.33 to 0.67 in the suburbs.
In other words, the government has restricted the land available with private builders for TDRs. The amended TDR policy will be released soon. Though widely seen as a pre-poll sop, many developers have welcomed the move.
What exactly is this TDR?
TDR means Transfer of Development Right. Supposing you own some property in Borivli. If the government declares it as reserved land (either to be used as a garden or as a heritage property), you may lose control over that property. But the government will compensate you by issuing TDR.
How will it help me?
TDR will enable you to sell to builders an equal area of the land you've lost. Only, this is a virtual space market. Here, you are actually not selling land that you own, but selling an equal area of virtual space for real space lost. You're selling a certificate and getting compensated for the land lost. When builders start selling and buying them, an open market is formed.
So, how will an increase in TDR bring down prices?
Earlier, the government's share in the TDR market used to be 0.33 and the open market share was 0.67. Since the bigger percentage was with private players, the government had lesser control over prices. Private TDR holders used to increase prices artificially and manipulate market. By reversing the ratio, the government will have a better control of the market and prices.
What are TDR prices like?
At present, TDR is sold between Rs 3,500 to 5,000 per sq ft. Once developers start getting TDR at reasonable rates from the government, their input costs will come down. There will no supply constraints. Automatically, property prices will also come down.
But the TDR prices are far lower...
Yes. The TDR prices are far lower than the actual land price. The logic is to compensate for lost land with something, rather than nothing.
What are builders saying?
Though property prices will go down, builders welcome stability. Price rise beyond a certain level will only lead to piling inventory and will not really help developers. Says Sunil Mantri, chairman of National Real Estate Development Council (NAREDCO), developers umbrella body: In Mumbai, there is a huge constraint over virtual space and this has resulted property price rise. Now, it will come down."