While self-development is one of the best ways to address the housing shortage in Mumbai, eliminating the financial support proposed in the Government Resolution (GR) last year may pose many challenges and result in perpetual project delays.
In September last year, the Reserve Bank of India (RBI) refused permission to Maharashtra’s State and District Central Co-operative Banks (DCCBs) to finance co-operative housing and self-redevelopment societies. This was done stating that such projects would fall under the category of commercial real estate,’ and hence, were kept outside the banks’ primary purview of lending for activities related to agriculture and rural development. For the Maharashtra government, which was banking on support from the state’s co-operative banking ecosystem, this was a massive blow to a scheme it presented late last year as the solution to the State’s, specifically, Mumbai’s housing crisis. Meanwhile, with over Rs 1,350 crore sanctioned and another Rs 17 crore disbursed in loans for such projects, RBI’s decision leaves the Mumbai District Central Cooperative Bank (MDCCB) and several housing societies with an uncertain way ahead.
Mumbai’s housing crisis and builder-led redevelopment
While Mumbai grew spectacularly as an urban centre in the years following India’s independence, its geographical constraints have caused severe problems with a premium attached to limited land and space and real estate prices being exorbitantly high. Most of the apartments in new buildings and housing societies, a product of urban development driven by builders, are unaffordable to the majority of the city’s population. For instance, a middle-class family with an average annual income of Rs 5-7 lakh buying a 600 sq ft apartment has to spend about Rs 2.1 crore -almost thirty times their average yearly income, which is nearly impossible. On the other hand, a considerable percentage of the city’s existing housing stock lies dilapidated and offers unsafe and poor living conditions. According to data from the Maharashtra Housing and Area Development Authority (MHADA), 14,000 buildings in the city are in dire need of refurbishment, with 25,000-30,000 housing societies having expressed their interest in redevelopment.
However, redevelopment is not a novel concept and has been promoted by successive governments over the past few decades. Traditionally, a housing society enters into an agreement with a developer, who would be liable to hand over the apartments to their respective owners upon construction with pre-established benefits such as a 10 percent increase in area or a given amount of money. To achieve this, the developer would utilise the remaining plot by constructing and selling additional apartments and shops as per approval from statutory bodies. This was and continues to be a lucrative venture for developers working without oversight and at their discretion. Developers sell properties at exorbitant prices and earn huge profits. However, housing societies and residents would often be left with poorly designed and constructed buildings, subjected to excessive delays, and sometimes, even the developer's abandonment of the project. Consequently, a framework for regulating such power was put in place under the Real Estate Regulatory Authority so developers could not divert funds from one project to another and increase risk. But that was not enough and needed a new and better model of redevelopment.
The case for self-redevelopment
In September 2019, the Maharashtra government introduced the self-redevelopment scheme for co-operative housing societies with a Government Resolution (GR). The aim is to empower residents to control the redevelopment process through its entire timeline –from commissioning a suitable architectural or contracting firm and managing construction to selling the additional real estate constructed and sharing the final profits. The autonomy of the process guarantees merits in all respects. It ensures that society' members will reap the benefits of good quality construction, modern amenities and infrastructure, and time-bound and cost-controlled construction. Additionally, with the developer removed from the process, there will be no risk of fraud, delayed construction, or loss of area; in fact, residents could expect up to a 40-50 percent increase in the carpet area compared to 15-20 percent in the traditional process. Most importantly, GR assures that self-redevelopment will bring down the cost of the surplus apartments (as opposed to the price inflation that occurs when a developer-driven by profit margins is involved), creating a ripple effect on the market and ensuring housing remains affordable to the masses.
To promote the scheme, the government said that it would offer 10 percent additional Floor Space Index (FSI) over the permissible figure, concessions in Transfer of Development Rights (TDR) and other construction premiums to housing societies opting for self-redevelopment. Additionally, the Maharashtra State Co-operative Bank (MSCB) was appointed as the nodal bank to work through the District Central Co-operative Banks (DCCBs) to provide loans to societies at relatively lower interest rates of around 12.5 percent as opposed to about 18 percent offered to developers. However, with the RBI’s recent notification, this critical link has been severed. Now, housing societies will have no choice but to go back to the vicious builder-driven redevelopment model.
The way forward
The decision from RBI has many loopholes and deserves questioning. What happens if a district co-operative bank serves a wholly urbanised area? MDCCB is the perfect example where local housing societies own a majority stake in the bank. Its operations, which extend from Colaba and CST in southern Mumbai to Dahisar and Mulund's neighbourhoods at the city’s northern periphery, does not house any farmer's or agricultural land. The MSCB, therefore, must immediately file an appeal with the central banking regulator to reconsider and/or clarify its decision publicly. Meanwhile, private investment firms and financial institutions must come in and participate too; self-redevelopment can yield Returns on Investment (ROI) as much as 12 percent. This transparent and democratic model enables people to carve their own sustainable future needs to solve Mumbai’s housing crisis.