New Financing Options for Self-redevelopment Of A Property
New Financing Options for Self-redevelopment
In a bracing and timely new trend, progressive consultancies offering specialised services and financial assistance for the housing sector are beginning to make their mark on the Indian residential real estate landscape.
For instance, many consultancies offer rental deposit loans to young professionals who prefer to rent rather than buy properties. Via these consultancies, they can secure loans to pay the security deposit which can equal up to 8-10 months’ rent advance. Unlike in personal loans, the principal payment is made directly to the landlord and returned to the consultancy when the lease agreement ends. The tenant pays interest through the lease tenure.
However, an even more exciting service being offered these days is self-redevelopment funding and management. Firms that offer such services to housing societies are becoming very relevant in cities like Mumbai. Rather than involving a developer to carry out the redevelopment, housing societies can outsource the entire task to expert consultancies to both finance and manage the redevelopment process according to exact needs and specifications.
The scope of services offered by such consultancies goes beyond just redesigning and construction and extends to handling the associated manpower management and paperwork, dealing with government agencies and even the sale of extra flats based on the FSI and TDR available to the housing society.
While banks and housing finance companies are currently not keen on granting loans to developers, individual societies opting for self-redevelopment can still access finance via these companies.
An increasing number of housing societies in ageing projects are considering of taking the self-redevelopment route. With the help of specialized services, these societies can not only avoid the risk of delays by developers but also access cheaper loan rates. A society opting for self-development can get a loan for relatively lower interest rates like 12.5%, as opposed to loans to developers which can attract interest rates in the region of 20%.
In the past, the only real option for such housing societies was to entrust the entire redevelopment project to a developer. Today, self-development by housing societies has become a real possibility - and they can now avail of specialized support.
We are likely to see more such consultancies entering the fray as the trend of self-redevelopment becomes more prevalent, especially with various state governments making policy changes to promote self-redevelopment. In fact, this new sector would open up in all earnest if self-redevelopment projects are given more tax exemptions.
The number of buildings that need to redeveloped in the Island City is constantly rising. Just before the onset of monsoons this year, Maharashtra Housing and Area Development Authority (MHADA) identified more than 14,000 buildings within Mumbai as dilapidated structures which needed to be redeveloped with no further delay.
In other words, the opportunities for such consultancies is on the rise. Apart from Government support, they are perhaps the most important link to successful self-redevelopment in cities like Mumbai. They radically empower housing societies to take charge of the redevelopment of their societies based on their preferences and needs, providing a 360-degree, streamlined redevelopment process.
Self-redevelopment of housing projects does not only give housing societies the assurance of time-bound, cost-controlled and predictable results. It also brings down the cost of surplus apartments, as opposed to the price inflation which results when a developer with the sole objective of hefty profit margins is involved. In other words, housing societies which self-redevelop their premises can sell the resulting extra flats at lower and more competitive rates.
Considering the various benefits such services bring to the table, a transparent and consolidated management fee - as opposed to the often-gargantuan cost and time overruns of an unplanned or mercenary approach to redevelopment - is indeed a price worth paying. Redevelopment needs to become an exact science, and the industry looks forward to more and more such specialized players coming to the fore to help increase competitiveness in pricing, and overall efficiency.
--Shobhit Agarwal, MD & CEO - ANAROCK Capital