Leasehold properties the bane of Chandigarh administration
Hundreds of leasehold properties that can fetch the Chandigarh administration revenue in crores are lying vacant for the want of buyers.
Nearly 70% commercial and industrial plots in the city are leasehold, allowing occupation for a limited period, mostly 99 years. Ownership rights in the case of such properties are with government agencies, such as the estate office, municipal corporation (MC) and Chandigarh Housing Board (CHB), while the freehold status gives the buyer complete rights over the property.
Out of 189 leasehold properties put on auction this year, the CHB could get buyers for only eight. Now, it has decided to reduce their reserve price by 10-50% in yet another attempt to attract buyers.
However, the CHB is not the only UT agency stuck with leasehold properties. The MC has failed to monetise more than 200 leasehold properties. Facing an acute fund crunch for long, the MC could generate more than ₹250-crore revenue with their sale.
Although the number of vacant leasehold properties was not readily available with the UT estate office, a senior official said: “Despite several attempts, the department has not been able to find buyers for hundreds of leasehold commercial and residential properties.”
The MC has prepared a list of over 200 commercial properties under its purview that are lying vacant. Several attempts to auction these properties went in vain.
For instance, it tried to sell off 105 booths at Mauli Jagran six times, but failed. As many as 51 commercial sites in Sector 17 are also lying vacant despite two auctions. A 24-acre site for a specialty hospital in Manimajra, with a reserve price of ₹81 crore, was offered twice for sale, but found no takers.
The UT estate office had conducted its last auction in November 2019 when all 10 freehold properties on offer were sold while there were no takers for 15 leasehold plots. “The department had generated a revenue close to ₹44 crore from the auction of freehold properties, whose total reserve price was around ₹27 crore,” said the estate office official.
The CHB, in the past four months, has conducted four e-auctions for its 121 freehold residential properties and has been able to sell 87, earning ₹70.59 crore. In the same period, it has been able to sell only two residential and nine commercial leasehold properties, earning ₹1.74 crore and ₹4.73 crore, respectively.
Why the mess
“In leasehold properties, the allottee is required to pay yearly ground rent at 2.5% of the consideration amount for 33 years, followed by 3.75% for the next 33 years and 5% for the subsequent 33 years. Since this is a substantial amount and ownership rights are inferior as compared to freehold, people prefer to go for the latter,” said a senior UT official.
“In the new business environment, a leasehold property carries inferior title, thereby causing impediments in joint ventures and raising capital. In Chandigarh, for commercial and industrial plots, one can’t even get a leasehold property converted to freehold. For residential properties, conversion charges are too high,” said Pankaj Khanna, president, Industries Association of Chandigarh.
The conversion charges for residential leasehold properties vary from 12% to 15% of the consideration amount.
“The Chandigarh administration has written to the Union government, seeking approval for allowing conversion of leasehold commercial properties to freehold. We have also recently sent a reminder to them, but have got no response so far,” said UT adviser Dharam Pal.
Pal said that one option could be reduction in reserve prices to attract buyers. “The CHB has recently done so; other agencies can also explore it,” he said.