Banks set to fund society redevelopment projects
Mumbai’s residential societies that have not been able to ink redevelopment deals with builders could now turn to banks for assistance. Banks are willing to finance entire redevelopment projects undertaken by residential societies.
The move would let societies use transfer redevelopment rights (TDR) or free space index (FSI) benefits for themselves.
Typically, redevelopment projects involve a new construction in which residents are offered the same, or a larger area, compared to what they owned earlier. The builder bears the costs of demolition, construction and rentals for relocation of the residents in the interim period, which may be two-three years. The builder, in turn, profits from the extra FSI or the TDR available. However, if societies can secure loans from banks directly, the need for a builder would be bypassed.
So far, only Central Bank of India has plans to launch such a product. However, other co-operative banks that have a strong presence in suburban areas, where societies are likely to opt for redevelopment, are also exploring business opportunities in funding redevelopment for societies.
Central Bank would offer home loans to individual members of the society, while the society would be the guarantor for the loans. The society would then have to engage a builder on a contractual basis to carry out the construction.
Eknath Thakur, chairman of Saraswat Bank, says, “These are early days. But our bank does see a big opportunity here, and we are working out details and look at fleshing out arrangements for such proposals.”
While banks have evinced interest in such arrangements, bankers insists they would primarily look at an individual’s payment capability. A senior IDBI Bank executive said banks could consider dwellers who come together for redevelopment as a joint liability group (JLG), since this would enhance the viability of a project. The JLG concept is in vogue for lending to self-help group under the financial inclusion programme.
Ram Sangapure, general manager (retail), Central Bank of India, said, “Under our home loans portfolio, we would fund construction for those parts that the residents would use for themselves. Any construction for commercial purposes or for third parties would be considered as project financing, and have to be approved separately.”
Builders have turned to redevelopment of existing properties since the availability of land is scarce. However, such projects are time-consuming. Sunil Mantri, chairman, Sunil Mantri Realty, said, “Since there are a number of people involved in the society, the decision-making process takes more time. Besides, there are logistics issues like transit accommodation arrangements.” Currently, such deals are stuck at the discussion level, he added.
Many in the housing industry feel only societies that don’t really have any FSI incentive to offer builders, or those that want to retain the extra space for themselves, would undertake redevelopment by themselves. “A large part of the builder’s job during project redevelopment is to secure the required permissions — from commencement to completion. Getting these may be easier said than done,” says Sunil Rohkole, executive director, Ask Investment Holding.
Societies are expected to do their homework before approaching banks for a loan. So, the onus of getting all the members to agree on fresh loans under the project and securing the required approvals would be with the society. Such loans would also turn out to be more expensive than regular home loans, since the loan amount would be higher. “Though modalities are still being worked out, the final costs would be inclusive of demolition of the existing structure, relocation costs of the residents and construction of the new property, besides the money spent on registration,” said Sangapure. However, the interest rates applicable would be in line with existing rates in the home loan market.