Redevelopment – Guidelines for Housing Societies

Ramesh Nair, Managing Director – West India, Jones Lang LaSalle India
In Mumbai, rising costs and lack of space make it unfeasible for residents to move out of aging and often sadly dilapidated housing societies. Not surprisingly, redevelopment has become a central concept – and the subject of increasingly heated debate.
Many of Mumbai’s older housing societies are showing signs of serious neglect. There are distinct safety and security issues and a complete absence of modern amenities. In this scenario, redevelopment is a sensible, viable, long-term solution – in fact, often the only solution. However, while many developers sell the dream of redevelopment to housing societies, there have been several cases where the dream has turned into a nightmare for the families who reside in these societies.
Though I will not name them, there are some rather prominent banners among the developers who have defaulted on their redevelopment promises. It is quite evident that selecting a dependable and trustworthy builder who is familiar with and knowledgeable about the processes involved is fundamental to ensuring successful redevelopment.
A redevelopment project going wrong can have disastrous consequences for all stakeholders, and it is invariably the housing society’s managing committee that becomes the scapegoat. In redevelopment, prevention is most definitely better than the cure.
A failed redevelopment can be avoided by adhering to a proper process while selecting a developer to partner with. Once the developer is finalized, it is important to incorporate all of the standard 27 clauses that safeguard the society and its members into the development agreement. This can eliminate the possibility of disputes at a later date to a significant extent.
The cure for a botched redevelopment would be legal proceedings against the developer. However, as per law, a redevelopment project has to be completed within two years – a period that can be extended to three years in exceptional cases. Legal proceedings against the developer could take several years, making this an unviable route and often not an option at all.
Who Is The Right ‘Re-Developer’?
While selecting a developer, both financial and quality aspects need to be considered. Most societies focus on only quantitative financial terms, which include:
• The carpet area offered to each society member
• The corpus amount offered
• The FSI consumed
• Alternative accommodation
• Shifting charges
• Penalties
• Specification
What gets ignored with such a blinkered focus are the qualitative aspects of the developer, which would include past experience and track record. Extensive research needs to be done on the developer’s construction, marketing and legal track record.
Some of the questions that need to be asked are:
Does the developer have a strong brand?
• Can the rest of the redevelopment scheme be on par with the quality and brand of the developer’s portion?
• Is the developer known for violations, or does he have a clear track record on aspects such as title?
• What are the systems, structure and strategy of the developer?
• Does he have strong in-house construction and marketing teams for execution?
• Does he have a record of cost and time overruns?
• What is his level of implementation expertise?
• How well-connected is he, and how adept at obtaining the necessary approvals on time?
• Is he knowledgeable about and comfortable with the local environment? He may have to handle unforseen hurdles that are always potentially a part of redevelopment projects
• What are the developer’s abilities in terms of raising equity and debt funding?
• Does he use a transparent and consistent financial accounting policy? What is his current fund availability and funding pattern?
The society should do a reference check of at least two or three others societies where the developer has constructed and delivered projects. It is essential to establish whether he adheres to promises on quality and timelines made in the agreement, whether he treats the development agreement like a contract rather than a piece of paper and if he provides sound structures with good infrastructure and finishes. A developer with good credentials would not only command a premium over competition in pricing but also have easy access to low-cost capital.
The Search
Given the complexities involved in the Mumbai real estate market, there is no single, standard solution in redevelopment. There are therefore no one-size-fits-all choices among ‘re-developers’. The process involved in a developer search should be customized, flexible, transparent and in line with the redevelopment rules. It should also be equitable and time-bound to increase interest levels among prospective top developers, and advisory-driven so that the final selection garners the highest value for the society.
Any commercial offers from potential developers should be driven by competition rather than price. Awareness has to be created amongst all the relevant developers, and a single, unified message should go out to them from the society. The society should rope in expert help to analyse the prospective developers. Word-of-mouth referrals from other societies who have recently and successfully undergone redevelopment are also an important source.

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