Saturday, April 12, 2008

TDR rates fall, will flat prices follow suit?

As one as see the bubble was due to FSI policy as well as FSI hoarding, both artificial factors If a builder like Oberoi is saying prices will fall, I think they will starting this week. A lot of buyers who have bought in the recent past will see themselves upside down. IS this a sub-prime crisis where their loans are worth then their properties. A bear market has just begun in Mumbai housing

Mumbai: Rates for transfer of development rights (TDR) have crashed in Mumbai. TDR certificates, which were being sold at an average of Rs 4,500 per sq ft until recently, have plummeted to Rs 1,500 per sq ft. This follows the Vilasrao Deshmukh government’s decision to raise floor space index (FSI) from 1 to 1.33 in the suburbs (first reported by TOI) and keep the premium for the same less than the ready reckoner rates.
The million-dollar question now is whether or not builders will pass on the benefit of the drop in TDR rates to buyers, who are finding flats even in the distant suburbs of Mulund and Dahisar way beyond their budgets. Their problems were compounded when housing finance companies suddenly become tight-fisted following the credit squeeze.
Said Vikas Oberoi, a builder, “There is absolutely no doubt that builders will carry out a correction in tune with the fall in TDR prices. The government’s aim of making flats more affordable will be achieved.’’
Another developer, Sandeep Runwal, said, “The high price of TDR was actually hurting the construction industry as we builders had no choice but to mark up prices. This, understandably, was met with consumer resistance. Now, a more realistic picture will prevail in the property market.’’
It is also being asked whether Vilasrao Deshmukh, who belongs to the Congress, was actuated only by his desire to bring down flat prices when he decided to increase FSI to 1.33 or was there a bigger gameplan.
Sources in the real estate industry said lakhs of sq ft of TDR were cornered by three big builders close to an NCP leader. This left the bulk of builders at the mercy of this group of builders, who jacked up prices to Rs 4,500 sq ft.
If this situation was allowed to continue, then the NCP’s war chest would have overflowed with cash before the general elections next year. “Given the political implications of this, the central leadership of the Congress decided to move in and asked Deshmukh, who holds the urban development portfolio, to raise the FSI and trigger a bear run in the market,’’ a senior bureaucrat told TOI on Friday. A spin-off benefit will be cheaper flats, which will assuage the feelings of the middle-class.
TDR Transfer of development rights: Generally, when a plot owner surrenders his/her property reserved for playground or other purposes, then he/she is compensated with a TDR certificate specifying the FSI. The certificate can be traded in the market. Similarly, when a builder constructs pucca houses for project-affected persoJustify Fullns, he is incentivised by granting TDR certificates. The FSI, however, can be utilised only to the north of the property where it was generated. FSI Floor space index: It lays down the buildable area of a plot. If a plot area is 1,000 sq ft and the FSI is 1, then the buildable area will be 1,000 sq ft.

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