Rise in fine for builders delaying redevelopment projects on BMC land

Mumbai: The civic body has decided to turn up the heat on developers who delay redevelopment projects on municipal tenanted properties or withhold paying the capitalised

Mumbai: The civic body has decided to turn up the heat on developers who delay redevelopment projects on municipal tenanted properties or withhold paying the capitalised value of their projects. To recover its losses worth crores of rupees in such cases, the Brihanmumbai Municipal Corporation (BMC) will now charge these developers capitalised value as per the current ready reckoner rate, as against 18% of the agreed capitalised value. The move is being hailed as a setback for the real estate sector, already reeling under a financial crisis owing to slump in sales.

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Capitalised value of a project is calculated as a percentage of the total income expected from it. The developer can pay the capitalised value to BMC at a go or in instalments over a period — usually three years — agreed upon at the time of getting construction approvals. Currently, the BMC charges penalty of 18% of the agreed capitalised value in case of delay in getting the instalments or handing over the completed project.

Acting on the advice of the Comptroller and Auditor General (CAG), the BMC has decided to charge offending developers capitalised value as per the ready reckoner rate, which increases 20-25% annually. The penalty of 18% is more viable as ready reckoner rate grows at 20%-25% annually, developers said. However, if the project is completed in time, the developer will pay capital value as agreed upon with BMC initially.

Keshav Ubale, assistant commissioner of the estate department, said, “Why should the corporation lose money if a project is delayed? The policy says developers must pay the capitalised value when it is due, as per the ready reckoner rate of that year. If they delay in payment, for example, it was due in 2016, but is paid in 2018, then the amount will be calculated as per 2018’s ready reckoner rate. Otherwise, the sum BMC was supposed to get in 2016 is coming in 2018.”

There are 128 redevelopment projects on municipal tenanted properties in the city, of which 16 have paid their entire capital value, while 46 have chosen to pay in instalments. Of the total 128, 34 projects are completed and in 95 cases, construction is going on, according to BMC data.

Developers said they will benefit nothing from the policy owing to pre-approved floor space index (FSI). FSI indicates how high a developer can build a project on a plot. They claim many of them are unable to complete projects in time owing to various external market factors or lack of funds and unsold inventory. “What was costing ₹6 crore to ₹10 crore in 2013, will cost ₹60 crore in 2019 owing to the policy, with no benefits for developers,” an expert said.

According to Practicing Engineers Architects and Town Planners Association (PEATA), this policy will make approximately 100 redevelopment projects in the city non-viable owing to drastic increase in cost. Milind Chagani, a senior architect associated with PEATA, said, “It is like purchasing a car in 2013 that you choose to pay equated monthly instalments (EMI) for. In 2019, you are told the amount of EMIs remaining should now cover cost of the car as per 2019.”

According to Chagani, in many cases, developers have sold the flats available in the pre-approved FSI, but applied for an occupation certificate later. “In such cases, where will the developer recover the money from?” he asked.

Chagani also said the BMC allots a standard period of three years from the time of granting the first permission (letter of intimation) for all projects, regardless of whether they are of 30,000 square feet of 20 lakh square feet built up area, and it is not feasible to complete larger projects in three years.