TDR policy in Bangalore has come to a standstill in the last 18 months. Almost 1000 TDR files and around 100 odd projects worth several hundred crores are stuck at BBMP in want of plan sanctions involving TDR loading. In 2015 BBMP withdrew its TDR policy as there were numerous allegations of horizontal violations (setback violations) by builders. Some people had even approached the Lokayukta requesting intervention. (For more info on TDR and these violations you may read my previous post.)
New TDR Policy
The new TDR policy proposed by the government has tried to make it more lucrative for landowners to relinquish their lands to govt agencies. However, the builders believe the new policy is unviable. Below tables show the comparison between the old TDR policy and the new proposed TDR rules.
Why the new TDR policy hasn’t taken off
The biggest consumer (buyer) of TDR issued to landowners are real estate builders. They usually buy TDR to build more on a given piece of land especially in central & secondary business districts to improve their profit margins. The proposed TDR policy has removed the price advantage builders used to get on TDR as the new price mechanism is based on the guidance value of receiving plots. Let’s understand this by the below example:
A builder X is developing a property on MG Road Bangalore. Brief of the project is:
As per the previous TDR policy, the calculation of TDR and its cost of acquisition is as follows:
As per the proposed TDR policy, the calculation of TDR and its cost of acquisition is as follows:
We can clearly understand why builders are not happy with the new TDR policy as their cost of TDR acquisition has gone up by almost 200% (Table 2 vs Table 3). Builders usually load TDR only in projects where the FAR value of land is much lesser than the cost of TDR acquisition. In this project, we can see the FAR value of land is Rs. 8333/- per sq ft. (Guidance value / FAR). In the previous TDR policy (Table 2) the cost of TDR was much lower than the FAR value of land. Hence it was extremely lucrative for the builders to load TDR. This is no longer valid in the new TDR policy (Table 3).
Additionally, the builders feel that the guidance value is not based on any scientific method and in many areas, it does not reflect the true market value. This will make redevelopment either unviable or drastically cut the profit margins for the builders.
The government has to make sure the new TDR policy is a win-win for both landowners and buyers of TDRs (predominantly builders). If the policy is not lucrative enough for the buyers of TDRs, government will be find it extremely difficult to acquire lands from landowners who won’t be interested in TDRs in the absence of buyers. Additionally, the town planning agencies must make sure the TDR policy is not vaguely drafted to allow loopholes for exploitation of bylaws and violations.