Sunday, April 1, 2018

Virtual TDR, Revenue Short Fall & Real Estate!










“Democracy must be something more than two wolves and a sheep voting on what to have for dinner.”…  James Bovard.

James Bovard is an American libertarian author and lecturer whose political commentary targets examples of waste, failures, corruption, cronyism and abuses of power in government. His above words are from his famous work, Lost Rights: The Destruction of American Liberty, I remembered because just two days back I got a whatsap message from a friend who isn’t a builder or architect or builder’s lawyer or CA rather no way related to real estate. He has asked, what virtual TDR is, I read a bit but I have failed to understand! I wondered why he has asked such question as he isn’t in real estate, yet I replied in a way TDR itself is a virtual thing & it’s a complex urban planning subject which can’t be described on whatsap, will try to explain in person. And then next day I get to read in news papers about govt forming a committee to decide the mode of virtual TDR as well from our organization i.e. Credai, I received an email also informing me about such committee & its purpose! Also on very next day, I read another news about PMC’s (Pune Municipal Corporation) building department’s revenue for financial year ending March 18 has a big shortfall than the targeted (or say predicted); the target of revenue given to building depart was some Rs 1400 crores while the collection was Rs 561 crores ,just 40% of what has been predicted. Not that the concerned officers are incapable but at city level itself the real estate market has been demoralized is a fact.

Now many people will ask what’s the relevance of these two news, i.e. virtual TDR & PMC building dept’s revenue short fall? Well, for that one must first understand the scene of real estate as well role of the TDR itself in entire system of real estate. Because TDR is something which has been successful only where real estate is doing well. And before we go to virtual TDR (just like virtual currency Bit coin, which is very much in news recently), lets know the TDR concept itself. Take example of our Pune city, where there is a governing body which we call PMC. To make plan for the entire city & to execute this plan so the civic infrastructure gets developed for the citizens is the very basic duty of PMC. In civic infrastructure there comes two types of developments, physical i.e. roads, water lines, drainage lines & treatment plants, river development, public transport & many such. In social infrastructure comes, school building as well its operations, public health, gardens, entertainment i.e. theaters as well public places etc. Now to make this develop, two major fronts has to be taken care, one is acquisition of the land & second is actual building or developing & running of these establishments. And for both these fronts lots of money is required & here is where TDR comes in picture! As PMC would have required lot of money to pay to land lords whose land has been required to acquire for above mentioned reservation & its entire budget would have come to end just for purchasing of these lands by market rate. So long back govt came up with the concept of TDR i.e. Transfer of Development Rights means you don’t give actual money to the land lord whose land PMC is acquiring. But give him a virtual FSI i.e. floor space index certificate which he can sale to other person (read builder) who has land free of reservation where he can build this additional virtual FSI i.e. area. In nut shale you are increasing potential of free lands by allowing use of this virtual land on it. This was win-win situation for all the concerned parties as landlord gets his money by selling TDR, PMC don’t have to spend hard cash to acquire reservation lands & the builder gets more potential for his free lands, making more area available for residential/ commercial development available on same land within the city!  One more thing was by use of this TDR as more construction was possible means more revenue to PMC’s building departments under various heads like premiums & development charges! Obvious, this formula soon become hit at TDR became a key word for real estate development as well making most related parties to it super rich!

This win-win situation of real estate & TDR kept on for years especially post 2010 but like all good things doesn’t last forever, the scene started changing in last few years & only the wise could saw it coming, (needless to say there are very few wise minds in real estate & I mean in all segments related to real estate) but most keep on being happy with the rising graph of property prices which kept graph of TDR prices also high. This is where some super brain in govt thought of concept of virtual TDR. I think the problem of our govt (read rulers) is that they are still confused that running govt means to make few people unhappy & make money (read make govt strong on financial front) or try to make all the people happy; as you can’t do both things at a time! The govt’s (not just this but all the govts before this) soul agenda is try to make all the people happy & for that you have to do everything like forfeiting farmer’s loans(no I am not against it or for it, I just put forward facts), giving free electricity, making illegal construction legal, not taking action on people for non-payment of their property taxes, giving free rice or lap-tops, delaying acquisition of the lands even for most necessary developments like dam or pipe lines & this list can go like Tail of Hanumanji (a myth from Ramayana) which has no end! And finally when govt realizes it has no money left as all has been spent in making people happy, then the govt comes up with an idea like Virtual TDR! I even remember last year the very same govt has declared a competition for suggesting innovative ideas about increasing govt’s revenue with a prize of RS 10 lac, though as usual it was great news for head line which just vanished the way a wave vanishes on the surface of water after hitting the shore! Seems, Virtual TDR is one such innovative idea of increasing govt’s revenue as it allows our "Mai Baap Sarkar" to sale TDR of land under Dams, Forts, Highway, Forests etc etc, & this Virtual TDR can be used anywhere in the State. Actually under the name of TDR its just sale of something which doesn’t exists in first place & then why we need such so called Virtual TDR, instead strait way increase the land potential of the properties in the cities & charge the developers for the same & collect that money. But it’s not that simple as first lets understand only in the cities where real estate is doing well there only the TDR has got any value. Right now except, Pune (read PMC & PCMC along with PMRDA), Thane & Mumbai region only real estate is surviving not even doing well! So except this region nobody is interested in developing even one FSI i.e. potential of the basic land in other cities, so why the developer will buy such Virtual TDR is the question? And if we are focusing on again above three cities then look at the grave situation of infrastructure in above three cities & why three, just take example of Pune region.

Prices of real estate are standstill last three years (in a way good sign for genuine buyers) which has driven away the investors means no heavy appreciation. And then the finished product is already gone so high that there are fewer buyers’ even genuine ones. And govt is forgetting the most important factor that even they can give free Virtual FSI (read at thrown away price) but where is land with proper infra at affordable price to utilize this additional TDR? We are best in showing dreams & worst at executing them & by me virtual TDR is one such classic case. As the reduced revenue of PMC’s building dept is clear warning sign that people are no more in capacity to produce homes in city like Pune because the said homes here are way beyond the buyer’s budget. So first take the steps by which the land prices will be under control as well provide every available piece of land good infrastructure so the population will be distributed evenly all around the city & not just in some pockets! And then this Virtual TDR is in a way changing the concept of TDR itself as TDR means giving rights of development in lieu of a land which is being used for some development which is forthcoming. As or else that land could have been used for building buildings on it or else why there is no TDR given for BDP (bio diversity parks) on hills or green belts along the rivers in city limit? Because logic is there is no development allowed in these zones so no TDr is given for such lands. Same way a dam site or reserved forest or a fort which is in existence, how we could have used those sites for building any residential or commercial building & if not then how we can give TDR for the same?

And then come the million dollars question, which makes me doubt govt’s IQ in first place & that is, where is the land to utilize this virtual TDR? And where are the policies to make the project viable if land is there, by using such virtual TDR? As right now in Pune to utilize full potential of any plot with existing TDR norms is becoming impossible for reasons such as accommodating parking for these additional units as well premiums rates (100%) which are at par with land rates. And then how we are going to make landlord reduce their land rates, which are smart enough now a days to work out salable area from a professional architect with all possible loading of TDR & deal with developer on salable area rate?  As right now as per the facts in most cities of our State, people are not being able (read not interested) even in using one FSI on the plots leave apart any additional TDR & that leaves with only option for Virtual TDR utilization is Pune region, Thane & Mumbai. And in Mumbai there already is enough paid FSI types option so mostly Thane & Pune remains only utilizing options for Virtual TDR, so what about the added burden of development on this region. As already citizens here have gone to High Court for inadequate infrastructure facilities by civic bodies of these regions, so who assures to provide water & take care of garbage generated by new burden? And imagine what will be traffic scene then in Pune with FSI going three or four times in central part of city as here only it will be viable! By the way, Metro Corridor is already offering four times TDR which covers most of city in Pune region so who will be using this virtual TDR & what will be policy for the same? As already there is huge conflict going in between use of paid FSI by PMC, existing regular TDR, Slum TDR & now TOD i.e. Metros TDR.  And on the top of it when govt is considering this virtual TDR then already for the acquisition of lands going under dam or canal or highways or reserve forest, these lands has been acquired by paying some compensation to the then landlords; so how can again the compensation can be re-paid in the form of Virtual TDR is a question bound to surface!

Why every time govt has to complicate the things is what I always wonder! Why can’t just squash every this TDR, paid FSI, TOD, slum TDR type things & make one clear policy which will increase the land potential itself & share the revenue generated through it between local body & State govt, as that’s the main tussle! Because till now whatever local level TDR is being generated the beneficiary is local civic body i.e. PMC for Pune & issue is State govt also wants share of this real estate profits, which isn’t anymore is the fact govt is turning blind eye on! As well when ever any such increasing land potential related policy is made then the benefit should be passed to the end level i.e. home buyer is most important as then only the homes will get cheaper & more people will buy homes & more builders will build homes in first place! Unfortunately this isn’t happening & till then whatever genius scheme we come up with FSI or TDR is not going to make homes affordable & the end result of revenue increase may it be for State govt or PMC, will be a failure! The current slowdown in real estate even in the Pune-Thane belt is alarming & reason is nothing but poor foresight as well a will to come up with practical housing polices by our rulers. As millions still want to buy a home & thousands of developers are ready to supply those homes, provided the system makes this process feasible for both i.e. the buyer & the maker of these homes!! Never ever the minds who pulls the shots in the govt takes actual builders, architects, planners in confidence before finalizing any policy related to the real estate as they thinks the builders are here just to make money & they will make it any way! Can’t blame this logic as that’s what real estate’s past tells us but then things are changing, if you want to make money & make people happy, at a time then first take the people in confidence. You can’t just announce one Metro route & tell people now the traffic problem will be solved; same way by giving three or four times TDR the homes won’t get cheaper, high time to acknowledge this basic fact in urban development! Need of the time is cohesive & uniform growth of infrastructure not just in one city but in numbers of cities in the State along with employment opportunities, as that’s how a State becomes strong & not by selling things like Virtual TDR which doesn’t exists!

To conclude I will share a story from Panchatantra (folk tales from past) where two cats were fighting for the piece of butter & they call a monkey to divide it equally between them as the cats weren’t able to agree of right division of the butter. But at the end the wise monkey ends up eating all the butter leaving two cats empty handed. Here the cats are State govt & local govt (read PMC in our case), monkey is obviously someone who will get benefitted out of such Virtual TDR policies & butter is the common man itself whose dream of owning a home is getting consumed in this fight of the cats named govt, but who cares!!

-- 
Sanjay Deshpande 
Sanjeevani Dev.

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