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Over the past six months, slum redevelopment TDR (Transfer of Development Rights) rates in Mumbai have spiked sharply, impacting builders' profit margins and construction project timelines. TDR rates have doubled in some areas like Mulund and Borivali, with developers now paying 120% of the ready reckoner rate compared to 50-55% earlier. The recent release of 30,000 square meters of additional TDR has failed to ease market pressures, with the limited supply being quickly absorbed. Most developers are reluctant to purchase at current inflated prices due to the significant hit on their estimated profit. While some have no alternative but to buy to meet delivery commitments, others are deferring TDR purchases or exploring non-TDR redevelopment options.
The real estate market in Mumbai is facing major headwinds due to a sharp spike in slum redevelopment TDR (Transfer of Development Rights) rates over the past six months. This increase is impacting builders' profit margins and delaying the timelines of ongoing construction projects. Advertisement
According to industry executives, the TDR rate in Mulund rose from INR 3,500 per square foot six months ago to INR 6,000 currently. Similarly, in Borivali the rate increased from INR 3,000 to INR 5,700 per square foot in the last six months.
TDR, or transferable development rights, refers to rights that enable real estate firms to develop over and above the permitted floor space index (FSI) - the maximum amount of construction allowed on a plot of land relative to its size.
With the general elections underway, followed by the state elections later this year, most builders are expediting their activities to avoid potential challenges in the future. This is resulting in a surge in demand for TDR. This surge in activity is fuelling higher TDR demand, says Sanjay Daga, founder and CEO of real estate advisory firm Anex Advisory.
Construction costs are rising sharply for developers as TDR prices have doubled. Even though 30,000 square meters of fresh TDR has been released in the market recently to meet the ongoing acute shortage, there are no takers. No developer wants to risk buying TDR at double the rate and disturb their estimated profit margins. Most are waiting it out if they can, while some are left with no choice but to buy TDR at inflated rates to meet customer commitments and RERA deadlines.
Paradigm Realty faced this issue for its Artteza project. To meet the 2024 deadline, it reluctantly absorbed a 10-15% hit to margins by purchasing inflated TDR. H Rishabraj Group, which has several redevelopment projects underway in the western suburbs, finds itself in a similar position for Borivali and Goregaon projects. When the company submitted its Borivali and Goregaon projects for approval eight months ago, the TDR rate was 50%-55% of the ready reckoner (RR) rate, which is the standard value of a property set by the government based on which property transactions take place. However, at the time of purchase last month, the company ended up paying 120% of the RR rate.
In contrast, Sheth Realty's Chintan Sheth has opted to defer TDR purchase for its upcoming Mulund project, given its longer four-year timeline.
The recent release of 30,000 sq m of TDR is insufficient given over 5,000 ongoing redevelopment projects and TDR gets absorbed quickly. Developers want more proactive government intervention to scale supply and stabilize prices.
Developers prefer not to opt for the TDR generation option in their SR schemes because the cost of generating TDR is higher than what they'll earn from its sale. Thus, they prefer to consume the FSI in situ by constructing and selling offices and flats rather than generating TDR in lieu thereof. As per government rules, it is mandatory for redevelopment projects, especially the small standalone ones, to consume a minimum of 20% of slum TDR in their projects.
Facing high TDR costs, new projects are exploring alternatives like permanent transit camps or cluster developments to bypass purchases. The current TDR market volatility is extremely unhealthy long-term, notes another industry expert. Ultimately, homebuyers are likely to bear the brunt of increased construction costs from higher TDR rates.
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