Change of guard in state brings back self-redevelopment projects

Mumbai: Last week the Mumbai District Central Cooperative Bank sanctioned ₹88 crore to six cooperative housing societies for self-redevelopment. This comes after a hiatus of 22 months when the Reserve Bank of India placed restrictions on State Co-operative and District Central Co-operative Banks (DCCBs) on providing finance for self-development projects.

The resumption of the cooperative banks’ lending programme to self-finance redevelopment has everything to do with the scheme’s original patron, Devendra Fadnavis, being back in the saddle as the state’s new finance and housing minister.

“The RBI directive was a temporary setback, but we are back with the scheme. Four of our funded projects are already complete, and these societies have also given possession to their members, and our loans have been paid back before the deadline,” said a visibly relieved Pravin Darekar, BJP MLC and chairman of the Mumbai Bank.

In 2020, the RBI had asked the Maharashtra State Co-operative Bank to ask all DCCBs to stop financing self-redevelopment projects as they fall in the category of commercial real estate projects, and risky exposure could impact the banks’ credit structure. Consequently, the self-redevelopment projects underway in Mumbai were abruptly stalled. At that point, the Mumbai Bank had given in-principle approval to loan proposals from 22 societies to the tune of ₹1117.26 crore, and proposals worth ₹1,916.88 crore from 31 societies were pending for approval, says Darekar.

Fadnavis, whose government had announced a slew of concessions for the self- development scheme in September 2019, then led several delegations to meet Finance Minister Nirmala Sitharaman, RBI governor Shaktikanta Das, as well as NABARD. “Devendraji played a key role and cleared the RBI’s doubts. We explained to them that we are not financing developers, but our member co-operative housing societies, and their project land as well as saleable flats would remain mortgaged with the bank against the loan provided,” Darekar told Hindustan Times.

On June 8 this year, the RBI once again allowed the DCCBs to finance housing projects. “Considering the growing need for affordable housing and to realise their potential in providing credit facilities to the housing sector, it has been decided to allow SCBs and DCCBs to extend finance to Commercial Real Estate – Residential Housing (CRE-RH) within the existing aggregate housing finance limit of 5 per cent of their total assets,” said an RBI notice.

With that out of the way, the Shinde-BJP government is expected to revive the September 13, 2019, GR which gave a slew of concessions for self-re-development including an interest subsidy of 4 per cent, a single window for all approvals, 10 per cent additional FSI as incentives, concession in MCGM and MHADA premiums and Open Space Deficiency premium.

Compared to a private developer-driven model, the self-redevelopment model allows members of a society to carry out the redevelopment of their building with the help of project management consultants who execute the construction. The members can personally monitor the quality of construction, ensure timely completion of the project, share the profit generated by sale of saleable flats either in terms of extra carpet area or as corpus fund which can used for future maintenance by the society. The land of the project, and saleable flats remain mortgaged with the bank as a collateral till the loan is recovered by the bank.

Jayakunj CHS in Borivali’s IC Colony is one of the buildings which has completed its redevelopment against all odds using the self-development model. “Covid-19 delayed our project by a year, but we completed it in July 2021 and gave possession to all eight members. Our experience has been very satisfactory. I had a 1BHK earlier, and now I have a 3BHK asset in Mumbai. We got nearly 44 per cent additional area in the flat,” said Vijay Lade, chairman of the society. Ten additional flats were built and sold in open market as part of the self-re-development.

Shantaprabha CHS in Goregaon East is one of the societies which received loan approval from Mumbai Bank last week. A ground plus three building earlier with 24 flats, it will turn into a 19-storey high rise with 76 flats, 32 of which will be consumed by the society members. The residents estimate the cost of erecting the shell of the building to be ₹55.68 crore. “We plan to vacate the building in December this year, and complete the redevelopment within 30 months. We will have 44 saleable flats and Mumbai Bank has sanctioned ₹25 crore loan last week,” said Sujit Gupte, whose father had constructed the society back in 1970s under self-development.

“Our chairman Atul Kale, treasurer Dnyanesh Patil, and member Vinayak Phadke, and I worked as a team. Quality construction and timely completion is our sole focus. It was done with the same emotion that you have when you build a house at your native place. We consider additional carpet area, higher corpus fund etc as a bonus,” said Gupte.

The return of the self-re-development model has understandably drawn cautious reactions from small developers. “Teaming up with a private housing developer implies that the developer recognises monetary gain in the sale of additional flats created through the redevelopment project. The society and the developer both have a vested interest in seeing through the redevelopment project to its finish line. If, in case, the project does not succeed in increasing the commercial value of the building, the society, as well as the builder, stand to lose a lot of money, time and effort,” said Harrish Kumar Jain, the founder member and Vice President of Brihanmumbai Developers Association (BDA).