Ramprasad Padhi

REDEVELOPMENT PROFITS

The profits under redevelopment are the issue of contention between builders and society represented by

dissenting members, the managing committee

and majority support the builder for dubious

reasons or due to ignorance.

Redevelopment of society is a burning issue now.  There are around 29,000 housing societies in Mumbai, and many of them are at various stages of process leading to redevelopment.  The reasons for going into redevelopment may be either the building is dilapidated or there are commercial benefits for going in redevelopment.

The redevelopment of an existing building has essentially two parties, on one end are members of building, represented by managing committee and other is a builder, who is interested in redevelopment and for whom this is purely a commercial deal for profit.

Now let us, first define “redevelopment”. Redevelopment in respect of housing society, can only be defined as “to once again develop an already developed sight”.  But then logical question arises, this redevelopment is for what? And only answer available is, to exploit the latent potentials in a developed property. The T.D.R.  Policy of Maharashtra has infused housing societies with lot of such potentials, and then recent reality boom has further added shine and this sparkling potential of the societies is waiting to be exploited.  

There are two parties to share these benefits, and ideally it should be done in fair and equitable manner.  However in reality, the builder who is in leading position in any redevelopment project, wants to grab as much of this potentials (read profits) as possible and in this self serving object of builder, managing committee of housing society comes in readily to help him.  

Managing Committee of housing societies is a honourary responsibility and is without any reward, so in many societies the person who is relatively free, having no business or professional engagement, and are relatively unsuccessful in their endeavor in their carrier are holding these positions in society.  Builders find these people easy to lure by offering small favors, usually paid under table.

Now before proceeding further, we should first study profitability of a redevelopment in a housing project.  Consider a society situated in western suburb between Khar and Vile Parle, having land of 10,000 SQ. ft. and existing building is using FSI of one i.e. having built up area of 10,000 Sq. ft., having 20 members i.e. each member having 500 Sq. ft. flat.  Now if this society goes for redevelopment, then the FSI of this land can go up to 2.4 (for MHADA land) using T.D.R. i.e. there can be 24000 Sq.ft. of total area after development.  In this builder can add 10% of balcony area available free of FSI as per B.M.C. Rules i.e. a total of 26,400 Sq. ft. area is built in a high-rise building.  After giving appox. 11,000 Sq. ft. to existing members of society, builder is left with 15,400 sq.ft. of area which will be sold as 30,800 Sq.ft. super built up at rate of around Rs. 20,000 Per Sq. ft., that is realization is around Rs. 61.60 crore.  The builders investment for this redevelopment consist of, rent @60/- Per SQ.ft for 24 months amounting to Rs. 1.44 carore, corpus fund of  Rs. 2,000/SQ.ft, amounting to 2.00 crore and cost of construction of 26,400 Sq.ft. at Rs. 1500/- per sq.ft, amounting to Rs. 3.96 Crore, cost of T.D.R. of 14,000 Sq.ft, at 2500/- per SQ. ft. amounting to Rs. 3.50 carore, thus the total expenditure is 10.90 crore, leaving builder a net profit of Rs. 50.70 crore. In the redevelopment project on a investment of just Rs. 10.90 crore or much less if one consider the booking amount recovered from the buyer and that too in just two years.  

All above details are as if one go exactly by rules, but then builders are known for deviations, like constructing additional floors which may some times be more than the approved by the BMC, or making commercial complex in residential building and getting realization of Rs. 50,000/= per sq. ft. that is 2.5 times higher than the residential premises, or by reducing the area of the existing members of the society. These deviations increase the builder’s profit many fold.

Then in many old societies the FSI used may be less than 1.00 and in that case builder’s profit is further increased, and in such case builder may offer to give additional area or more corpus funds.  

Now out of this even if builder shell out Small amount to each  managing committee members, then they will be more than willing to dance on the builder’s tune in way he wants them to.

Legally every member of above society is also owner of land to the extend of 5% but in reality the managing committee of the society claims 100% ownership on the land and takes decision under the shadow of majority, though the same may be wrong and against the interest of society and its members.

In society there are some people who do understand the financials of redevelopment project to some extend, but because of their personal limitation, they let the things go.  But still few members go the other way and demand for adequate compensation for society and when society see them as dissenting and without understanding & realizing their concept, start opposing them and then starts the dispute between majority & minority members, where majority is fighting out of their ignorance and minority is fighting in the hope of getting justice for a cause.

The greed of builders for greater share of profit, deep rooted corruption in society finding its way in the managing committee, ignorant and unsuspecting majority and few vigilant members give rise to a dispute. To avoid such situations the managing committee should behave responsibly and its entire act should be transparent and above the board. The members should also exercise all resources available to understand the financials of the project or alternatively the society should ask for detailed project report from the builders competing for the development and evaluate this with the one prepared independently by a reputed consultant appointed by the society.

These disputes are settled by the co-operative courts, under the purview of Maharashtra Cooperative Societies Act 1960. The object of the societies, as defined under the act are,

“(a)To obtain conveyance from the owner / promoter (Builder) in accordance with the provisions of the Ownership Flats Act and the rules made there under,  of the right, title and interest, in the land.

(b) To manage, maintain and administer the property of the society.

(c) To raise funds for achieving the object of the society.

(d) To undertake and provide for, on its own account or jointly with a cooperative institution, social, cultural or recreative activities.

(e) To do all things, necessary or expedient for the attainment of the objects of the society, specified in these bye laws.“

and logically only issues related to and falling under these objects  and decided by the housing society on majority can only fall under purview of Maharashtra Co-operative Societies Act, 1960. All other issues including redevelopment, especially when redevelopment is under taken for commercial and monetary benefits are clearly out side the purview of Maharashtra Co-operative Societies Act, 1960 and are civil disputes and can be dealt by civil courts only.  

The courts while deciding such type of dispute in a Housing Society should also evaluate the commercial aspect like profitability of project, fair and equitable distribution of profits amongst the builder and society, and other aspects like conduct of society and its managing committee, transparency in the affairs of society, and possibility of corruption by the managing Committee of society at the cost or interest of other society members. The court should also understand that the minority who are fighting for the fair and equitable deal are financially at very disadvantageous position compared to a builder who is likely to get huge profits from the deal. If courts fail to discharge its responsibility in this regard then this will amounts to courts helping the builders to cheat innocent and ignorant citizen.