Jun 26, 2012

Redevelopment of Flat Complex

As realty prices continue to zoom and land in most cities becomes scarce, builders have begun to look at the existing structures that can be redeveloped.
In fact, as an incentive to demolish older buildings and construct a new edifice with more floors, the developers are offering additional area, money and the promise of a new flat to the existing owners. While the offer may seem exciting, there are some things you should keep in mind before agreeing to have your property redeveloped.

Why is redevelopement needed?
Builders usually approach the housing societies that have old construction. The properties that were built over 25 years ago require overhauling every five to 10 years to retain strength and avoid seepage. The water pipes begin to decay after 20 years and replacing them can be expensive.
After a point, it becomes a costly proposition for the housing society to pay for such expenses through the members' monthly maintenance contribution. On the other hand, a newly redeveloped building will not need repairs for at least 15 years. Also, the developer can offer extra amenities like a gymnasium or a swimming pool to attract more buyers. It's also a good way to provide more houses in a lucrative and highly-desired location.

However, the additional floors will depend on the floor space index (FSI), which is fixed as per the development control rules of the city. The FSI is calculated by dividing the total area on all floors by the area of the plot where the building is situated (see Factors that affect the height...).
Redevelopment is also useful for individuals who want to tear down their old houses and build bigger or multi-storeyed edifices. However, they may not be able to afford the construction cost or take a loan for it. Also, overseeing the entire construction could be difficult and time-consuming. So, it's a good option for them to tie up with a builder and, in return, give him one or two floors in the new house.
What is the procedure?
Instead of purchasing the land from the housing society or owner, the builder typically acquires the legal right to develop the property. He pays some consideration to the society for granting permission and also provides alternative residential flats to the existing members till the new building is constructed. To develop the property, the builder requires the permission of all the members of the housing society, not just the agreement of the majority.
While entering into an agreement with the developer, the housing society has to hand over a copy of all important documents, such as the property registration card, latest property tax receipts, water bills, building plan and electricity bills of the members, along with a copy of the registration certificate of the society.
Ravi Goenka, advocate at Goenka Law Associates, says, "The agreement between the developer and the housing society should mention the carpet area that will be handed over to each member, along with the amenities and parking space, after the redevelopment.
It is mandatory to include the alternative living arrangement or corpus that the developer will provide to the members, the schedule and manner of making the payment, and also the tentative date for vacating the flats." The builder should also mention the date of completion of the project, as well as a penalty clause in case he fails to deliver on time. It's best to get the agreement registered so that it becomes legally binding

Additional cost for owners
A property owner may have to pay for some facilities from his own pocket. In case the developer gives him a bigger flat, the owner may have to bear the stamp duty and registration charges for the additional area.

The developer could also add more area to the property over and above the original area. This can be done through the trading of Transfer of Development Rights (TDR). This is a certificate that an owner gets if his property (either part or whole) is reserved for public utilities, such as a road, garden or school.
The owner can sell these rights to the builder, who can use it for additional construction on the property. So, if a developer has the right to construct only 10 storeys, he can purchase the TDR from another developer, which results in a bigger plot of land. This will allow him to construct additional floors or bigger apartments. The developer will then charge the owners for the extra area. If the builder constructs a gymnasium or swimming pool, he can ask the owners to pay for these facilities too.

Checking the feasibility
According to Naushad Panjwani, executive director of Knight Frank India, before you opt for redevelopment, you should exercise due diligence and check on the developer, as well as evaluate the legal and technical feasibility of the project.


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