Maharashtra housing agency for partnering private developers

With little available land for ready development; the Maharashtra Housing & Area Development Authority (Mhada) is scouting for partnerships with private developers. Mhada has invited expression of interest (EoI) from realtors, if they would be interested in sharing their land for development of houses for economically weaker sections (EWS) and the lower income group (LIG).

Mhada presently has only Mumbai and Nashik cities in mind. If it takes off here, the thinking is to extend this to Pune and Aurangabad, and then elsewhere, if a common formula could be arrived at.

The government agency has only 25 acres readily available for development. “Other land parcels are either encroached or the government has not completed the transfer procedure,” said a Mhada official. The dearth is forcing it to look at the public-private partnership (PPP) model.

Builders who would join the state development authority will be rewarded in two ways. They will get money for construction and would also be able to develop more houses on the land parcel. This is possible since Mhada gets a floor space index (FSI, the ratio of permissible build-up area to the size of the land lot) of 2.5. Private developers, on the other hand, are allowed an FSI of only 1 (with some exceptions, in parts of Mumbai). They need to buy transfer of development rights (TDR), if they want to develop more than the permissible limit. A developer generates a TDR by giving his land for public use such as widening of a road or slum rehabilitation. He may sell such rights in the market to another developer. Even after using TDR, developers may only construct up to an FSI of only 2 in Mumbai.

Mhada’s model will work like this. Assume a developer has a 10,000 sq mt (or 2.47 acres) plot. Legally, he may build only up to 10,000 sq mt of living space. If Mhada comes into the picture, he gets to develop housing space of 25,000 sq mt. Of this, Mhada will take between 6,250 sq mt and 10,000 sq mt, depending on the scheme. The realtor will get the rest. Mhada will also pay the developer the cost of construction. In this case, the builder gets 5,000-8,750 sq mt extra. Mhada is also looking at making use of the subsidy the government provides if 40 per cent of the project is used for housing EWS and LIG. The subsidy is between Rs 60,000 and Rs 1 lakh for each flat so built, depending on the house size.

Sources at Mhada said two developers have shown an interest on properties in Mumbai at Kandivli and Sewri. But nothing is yet finalised. “There are a lot of inhibitions that realtors have,” said a Mhada source.

Developers are worried that the rates at which Mhada will sell the flat can impact prices of their flats. Pranay Vakil, chairman, Knight Frank agrees. “The prices can dampen around 10-15 per cent. But the extra FSI should compensate it,” said Vakil.

But he also cautioned that this project can be affected if builders are allowed extra FSI. The earlier, Vilasrao Deshmukh government had raised FSI in the city’s suburbs to 1.33 from 1. Before it could be implemented a public interest suit was filed against this. If the court rules in favour of the government, builders will get FSI up to 2.66 in the suburbs if they would use TDR. Mohan Deshmukh, president of the Maharashtra Chambers of Housing Industry (MCHI), a builders’ association, feels this partnership is only feasible if the land is outside Mumbai city’s municipal limits. “Within the city limits, developers can make more money if they construct and sell the house on their own,” said Deshmukh.

He added that most developers showing interest have a land bank in the distant suburbs of Vasai-Virar or Kalyan and beyond.

“Many developers have land in these regions that have been acquired many years back at a pittance. The current property prices there are affordable for this kind of development,” Deshmukh said.