An overview into Self Re-development by Co-operative Housing Societies
With the ongoing slump in the real estate market and further slowdown in the sector owing to the Covid-19 pandemic, it appears that self-redevelopment will become the norm for the ensuing years to come.

Apart from saving costs, another major advantage is that the members of the co-operative housing society themselves control the process of redevelopment which is undertaken to suit their needs and requirements. The society members decide on the plans, designs and amenities which they desire to have.

Further, the members also get extra area in the new flats as compared to the areas which they are offered in case of re-development by builders. This is in addition to receiving the proceeds of the free sale flats also belong to the society alone. Most importantly, all rights are vested in the society and its members alone and there is no need to part with any development rights over the property.

MahaRERA chief Gautam Chatterjee in the foreword of the book 'Compendium of Self Re-Development for Cooperative Housing Societies' has advised that: "It is very important to understand the challenges and the risks associated with redevelopment rather than concentrating on the benefits of extra area and corpus alone. These words of caution indicate that undertaking self-redevelopment can be quite a herculean task in itself.

One of the major obstacles is the lack of expertise and the technical procedure for such redevelopment. Another tricky area is liaising with government authorities to obtain all the approvals and to manage the invoicing, accounting and taxation of the project - which processes, usually, the members are neither acquainted with nor have the time for it in addition to their professions. Thus, the society's committee members are required to devote substantial time and efforts to manage the self-redevelopment competently and to monitor the progress of the project as per accepted standards and the expectations of the society members.

Further, the redevelopment is to be financed initially by the society and for the later part it can procure finance from the nodal bank. Finally, once the project courses through the initial hurdles, the society may not have the resources or ability to sell the free sale component of the project, which may give rise to a difficulty in recovering the project costs and repaying the loan availed.

Through all these stages of the project, the societies have to face the issue of differences between the committee members and residents arising out of the several decisions to be taken for the redevelopment, in which case the committee members have to be extremely careful and accountable.

Mumbai city's first case of self-redevelopment itself was a misfire, since the project was stalled on account of suspected fraud in the dealing with TDR. The Chairman and Secretary of ‘The Ganesh Nagar ‘D' Co-Operative Housing Society' at Mahalaxmi had sold the same TDR to three different people and had sold it a value lower than the market price. Therefore, in this case, despite all the efforts of the members of the society, the project could not be completed on time due to the wrongful conduct of the Chairman and Secretary.

Having said that, there are several examples which serve as precedents for self-redevelopment. For instance, the residents of Charkop Jin Prem Cooperative Housing Society in Kandivali (West), Mumbai, completed the project of self re-development within 2 years and received their full occupation certificate within the said period.

In order to foster the growth of self-redevelopment projects, the Government of Maharashtra had passed its Resolution dated 13th September, 2019[1], granting several incentives to co-operative housing societies undertaking self-redevelopment.

The key features of the said Government Resolution dated 13th September (the GR) for self-redevelopment are as follows:

• Eligibility: Self-redevelopment can be undertaken only by those societies whose buildings are more than 30 years old;
• Single Window Scheme: Commencement of a single window scheme where all approvals would be granted at a single place by a single authority;
• Period prescribed for sanction of the scheme: All sanctions and permissions to be granted by the authority within a period of 6 months from the date of receipt of the proposal;
• Floor Space Index / Incentive Area: Grant of FSI/Incentive Area of additional 10% over and above the FSI prescribed in the concerned Development Control Regulations. Similarly, grant of an additional 10% FSI if the Rehab Area for the residents is more than the permissible F.S.I. In respect of the buildings on roads having width less than 9.00 meters, FSI of 0.4 to be granted without any premium instead of the present permissible 0.2 FSI (with premium);
• In respect of the roads necessary for the redevelopment: Relaxation of the condition of having two access roads and grant of permission to such societies whose buildings are adjacent to roads having width of 9 mtrs. in dense population and 12 mtrs. road width having less population. Similarly, land should be made available to the concerned society for making the road width of 9.00 mtr. and concessions should be given proportionately in the Front Margin of the building;
• Transferable Development Rights (TDRs): TDR to be made available by the concerned Planning Authorities at the concessional rate of 50% of the Ready Reckoner Rate;
• Concession in the Premium Rates: Concessions to be granted by the concerned Planning Authorities in the premia rates;
• Stages for payment of Premium: Premium to be paid in stages/instalments instead of collection of lump sum amount;
• Concessions in payment of Taxes / Charges for the registered cooperative housing societies adopting self-redevelopment:
  
  • Land Under Construction Assessment Tax (LUC Tax): Exemption from payment of LUC Tax in case of completion of the self-redevelopment by the societies within prescribed period;
  • Stamp Duty: Stamp duty concession to be provided in line with those available for beneficiaries of the Pradhan Mantri Awas Yojana (@Rs. 1000/- for new flats to existing members);
  • Goods and Services Tax (GST): Concessions on these charges should be granted;
  • Open Space Deficiency Development Charges: Concessions on these charges should be granted;

  Nodal Agency: The Apex State Co-operative Bank to work as a nodal agency through the District Central Co-operative Bank in the respective District. It shall publish through media, the complete procedure of the self-redevelopment and process to be followed, etc. The Mumbai District Central Co-operative Bank Ltd. is a central financing agency of all affiliated co-operative societies in Mumbai district and accordingly has been authorised to finance self-redevelopment by societies in the city and suburbs;

Period for completion of the self-redevelopment scheme: Mandatory to complete the project within a period of 3 years from date of sanction of the scheme by the concerned authorities;

Concession in Rate of Interest on Loan: Subsidy of 4% should be granted by the Government in the rate of interest;

Tripartite Agreement: Mandatory to execute Tri-partite Agreement between the Financial Institution providing finance, the concerned co-operative housing societies and the contractor appointed by that society;

Self Re-development of the society under Pradhanmantri Awas Yojna: Pursuant to the guidelines in the Pradhanmantri Awas Yojna, if the concerned societies are ready to construct 35% of the total flats for the benefit of persons from Economical Weaker Section/Lower Income Group, such societies should be granted 2.5 F.S.I. and the subsidy of Rs. 2,50,000/-;

Vigilance Committee: Vigilance committee to be formed comprising of two representatives from the committee of the concerned society and a representative of the financial institution. Mandatory for such committee to inspect the project on quarterly basis and to submit its report;

Grievance Redressal Committee: Grievance Redressal Committee to be formed for redressal of grievances on every district level. Such Committee shall comprise of: 1) District Deputy Registrar in the concerned District or the authorized person nominated in that behalf. 2) Officer authorized by the Planning Authority in the concerned District;

Criterion and Registration of Contractor: Concerned Planning Authority to determine the criteria for appointment of the contractors. Mandatory for such contractors to register themselves with the concerned Planning Authority;

Appointment of the Contractor for Self-Redevelopment: Each society to appoint a competent contractor after verifying last three years financial balance sheet of the contractor who is competent technically/financially;

Action against the Contractor appointed for Self-Redevelopment: Vigilance committee to scrutinize the progress and the quality of the construction. If the progress of the work is not satisfactory and if there is delay in completion of the project, then the society can appoint new contractor by removing the guilty contractor. Similarly, the Planning Authority should put the name of such contractor in the blacklist and new projects should not be sanctioned to such contractors.

Pursuant to the GR, many societies have opted for self re-development and the process involves briefly the following steps:

• Society must obtain consents of all members for self-redevelopment and pass resolutions to that effect;
• Feasibility of the project must be checked and the feasibility report should be obtained;
• Society to arrange for the funds required for the project (Nodal Bank funding to be obtained at later stage);
• Society to nominate and appoint architects, consultants, legal advisors, chartered accountants, construction managers, contractor, etc. and to list out the scope of work of each of these agencies;
• Society to be responsible for review, coordination, communication, etc. between all the agencies to ensure that the project is completed within the stipulated time period and as per acceptable standards;
• Documentation and approvals from the relevant authorities to be completed;
• Society's committee to ensure that the members do not have any grievances;
• Management of the sale of free sale flats to recover the loans and make funds for the Society (if any).
   

In addition to the eligibility criteria in the GR, societies in Mumbai must also comply with the conditions prescribed by the nodal bank, i.e. the Mumbai District Central Co-operative Bank (MDCC) as per its Self-Redevelopment Loan Policy[2], if it wishes to avail finance from MDCC. Some of the key terms and conditions for obtaining funding from the MDCC are:

• Society must be registered under the Maharashtra Cooperative Societies Act, 1960 and must be a member of MDCC;
• Society must be of A or B Audit classes;
• Resolution passed unconditionally by 100% of the members in a Special General Meeting of the society consenting to self-redevelopment;
• All statutory outgoings, charges and taxes must be paid by the society and all members must have paid their maintenance and dues to the society;
• Society must have a conveyance of the underlying land in its favour, i.e. it must be the owner of the land to be redeveloped and must submit requisite Conveyance Deed/ Index II as well as other title documents of the property;
• MDCC finances only 85% of the project cost and the balance 15% must be self-financed till the stage of obtaining the IOD/IOA (as the case maybe) and in case a society does not have monies for 15% of the costs and to obtain the initial development permissions, a process has been laid down to get funding from a Non-Banking Financial Company (NBFC) or an Alternate Investment Fund or Financial Institution.

Although the process seems daunting, a lot of societies have benefitted from the self-redevelopment schemes and saved themselves from being at the mercy of unscrupulous builders. In times where even the reputed developers and promoters have lately been under severe financial difficulty and with projects either delayed or stalled for long, a large number of self-redevelopment projects have been completed successfully with the societies profiting on all counts.[3] The Coronavirus pandemic has fuelled the existing decline in the real estate sector and an increasing number of societies will look at self-redevelopment as their best bet.

End-Notes:

1. https://www.maharashtra.gov.in/Site/Upload/Government%20Resolutions/English/201909131802099409.pdf
2. https://www.mdccbank.com/media/10955/marathi_self_redevelopment_loan_policy___11-08-2017.pdf
3. https://www.mdccbank.com/500-housing-societies-at-bank-door-for-self-redevelopment/

Written By:

1. Heta Modi &
2. Shivani Vora