Mumbai Redevelopment Demystified: A Guide for Society Members

In Mumbai, land is scarce. The only way to build new homes is to tear down the old ones. This has birthed the "Redevelopment Wave." For a society member living in a 40-year-old crumbling building, redevelopment is a dream come true: a new, bigger flat with modern amenities, a corpus fund, and rent-free living during construction. It is essentially a lottery ticket.

Though, stories of stalled projects, bankrupt builders, and homeless society members are all too common. Redevelopment is a high-stakes game. This guide empowers you—the society member—to navigate this complex process safely and profitably.

1. The Process: Step-by-Step

Redevelopment isn't an overnight event. It takes 3-5 years. Here is the lifecycle:

Phase 1: Feasibility & Consent

The society appoints a Project Management Consultant (PMC). The PMC studies the plot's FSI (Floor Space Index) potential and tells you what is realistic.
The 79A Process: Under Section 79A of the Maharashtra Co-operative Societies Act, the government has laid down strict guidelines. You need 51% consent (recently lowered from 70%) to initiate the process.

Phase 2: Tendering & Builder Selection

The PMC floats a tender. Builders bid.
Do not choose the highest bidder. Choose the financially strongest bidder. A builder offering 50% extra area but with no cash flow will stall your project. Look at their balance sheet, not just their brochure.

Phase 3: The Development Agreement (DA)

This is the "Bible" of your project. It details everything: extra area, corpus fund, rent, timelines, and penalties. Once registered, it's legally binding. Make sure it includes a "Bank Guarantee" clause.

Phase 4: Vacating & Demolition

You hand over keys only after receiving the:
1. IOD (Intimation of Disapproval) - Basic approval.
2. Bank Guarantee - Security from the builder.
3. First year's rent in advance.

2. Negotiating the Deal: What to Ask For

Don't just nod at the builder's presentation. Negotiate on these three pillars:

A. Extra Carpet Area

Standard offer in Mumbai suburbs is 30-40% extra carpet area over your existing carpet area. In South Mumbai, due to FSI caps, it might be lower (10-15%). Do not fall for "Super Built-up" promises; ask for RERA Carpet Area.

B. Corpus Fund (Hardship Allowance)

This is a lump sum cash payment given to members to compensate for the inconvenience.
Benchmark: ₹1,000 to ₹3,000 per sq. ft. of your existing area. A member with a 500 sq. ft. flat might get ₹10-15 Lakhs. This fund helps pay for the extra maintenance of the new building.

C. Rent for Temporary Accommodation

The builder must pay your rent while the building is constructed.
Benchmark: Market rent + 20%. Make sure the agreement says rent increases by 10% every year if the project is delayed. Ask for post-dated cheques.

3. The Critical Documents: PAAA

After the DA, every individual member must sign a Permanent Alternate Accommodation Agreement (PAAA) with the builder and society.
Why? The DA is between Society and Builder. The PAAA is between YOU and Builder. It specifies your specific new flat number, floor, and area.
New Rule: As of 2024, stamp duty on PAAA is nominal (₹1000) if full stamp duty was paid on the DA.

4. Risks & How to Reduce Them

Risk 1: Builder Runs Out of Money

Solution: Demand a Bank Guarantee of at least 20% of the project cost. If he defaults, the society can encash this to finish the work.

Risk 2: Project Delays

Solution: Penalty Clause. The builder must pay a heavy penalty (e.g., ₹5 Lakhs/month) to the society for delay beyond the grace period.

Risk 3: Quality Compromise

Solution: The PMC should have a site engineer who inspects the construction quality weekly. Do not rely on the builder's word. Check the cement grade, steel quality, and plumbing brands.

5. Self-Redevelopment: The New Trend

Why give the profit to a builder? In Self-Redevelopment, the society acts as the developer. They hire a contractor and manage the funds.
Pros: 100% profit stays with society (more area, more corpus).
Cons: Requires unity, time, and managing regulatory hurdles. Government offers interest subsidies and FSI incentives for self-redevelopment.

Conclusion

Redevelopment is a marriage between the society and the builder. Like any marriage, it needs trust, but more importantly, a solid pre-nuptial agreement (the DA). Do not get greedy. A completed project with 30% extra area is infinitely better than a stalled project with a promised 50% area. Stay united, hire a tough lawyer, and get ready for your upgrade!

6. The Taxation of Redevelopment Benefits

Are the benefits you get from the builder taxable? This is a gray area.

Rent: The rent paid by the builder for your temporary accommodation is NOT taxable in your hands. It is a reimbursement of expense.
Corpus Fund: Ideally, this is a capital receipt (compensation for hardship) and should not be taxable. But, income tax officers sometimes treat it as "Income from Other Sources." Make sure the Development Agreement clearly labels it as "Hardship Compensation" to avoid litigation.
Extra Area: The extra area you get isn't taxed immediately. Though, when you eventually sell the new flat, the capital gains tax will be calculated based on the cost of acquisition of the old flat.

7. Case Studies: Success vs. Failure

Success: Motilal Nagar, Goregaon. One of the largest redevelopment clusters. Residents here got 40% extra area and moved from chawls to towers. The key was unity and transparency in appointing the developer.

Failure: Patra Chawl. A notorious case where thousands of residents were left homeless for years due to a scam involving the developer and lack of proper bank guarantees. The lesson? Never vacate without a Bank Guarantee and IOD.

7. The Development Agreement (DA): Read the Fine Print

The DA is the bible of your redevelopment project. Once signed, it's legally binding. Make sure these clauses are airtight:

Timelines: Clearly defined start and end dates. "36 months from Commencement Certificate" is standard. Avoid vague terms like "reasonable time."
Penalty Clause: If the builder delays, he must pay a penalty (e.g., ₹50,000 per month) to the society, over and above the rent compensation.
Termination Clause: The society must have the right to terminate the contract if the builder fails to start work within a specific period or goes bankrupt.

8. Bank Guarantee and Corpus Fund

Bank Guarantee: Insist that the builder provides a Bank Guarantee of at least 20% of the project cost. This make sures that if he runs away, the society can encash the guarantee to restart work.
Corpus Fund: This is a one-time lump sum the builder gives to the society. It generates interest income to pay for the increased maintenance costs of the new, high-tech building (lifts, gym, security).

9. Case Study: A Cooperative Triumph in Borivali

The "Siddhivinayak CHS" in Borivali West opted for redevelopment in 2020.
Offer: The builder offered 35% extra area and ₹15,000/month rent.
Challenge: Two members refused to vacate, demanding 50% area.
Solution: The society used the "79A" circular of the Maharashtra Cooperative Societies Act, which allows the majority (51%) decision to bind the minority. The Registrar expelled the dissenting members, and the project went ahead.
Result: In 2024, members moved into new 3BHKs worth ₹2.5 Crores (up from ₹1 Crore).

The Tax Angle: Capital Gains in Redevelopment

Redevelopment brings joy, but it also brings the taxman. Here is what you need to know:

1. Tax on Extra Area: If you get an extra 300 sq. ft. area free of cost, is it taxable? Generally, no. Tribunals have held that the extra area is a compensation for the hardship of shifting and isn't "income."

2. Tax on Hardship Allowance (Rent): The monthly rent paid by the builder is for your alternative accommodation. It is a reimbursement of expense, not income. So, it isn't taxable.

3. Tax on Corpus Fund: This is a gray area. If the corpus is used to generate interest, the interest is taxable. If the corpus is used to reduce maintenance, it's tax-neutral. Consult a CA before accepting a large corpus cheque.

10. Documents Checklist for Special General Body Meeting (SGBM)

Before you sign on the dotted line, make sure the society has these documents ready for the SGBM:

Structural Audit Report: Proving the building is dilapidated (C1 category implies immediate evacuation/demolition).
Feasibility Report: Prepared by a Project Management Consultant (PMC), detailing the FSI potential and expected corpus.
Draft Tender: The document used to invite bids from developers.
Consent Letters: Individual consent letters from at least 51% (or 79A specified %) of members.

The Role of the PMC: Never go into redevelopment without a PMC. They are the technical experts who represent the society's interest, check the builder's calculations, and supervise the construction quality.

11. Redevelopment vs. Major Repairs: The Dilemma

Many societies are confused: Should we repair the building (structural audit suggests it has 5 more years) or go for redevelopment?
The Case for Repair: Cost is low (₹2-3 Lakhs per member). No displacement. You stay in your home.
The Case for Redevelopment: You get a brand new flat with modern amenities, more area, and a higher resale value. Repairs are a temporary fix; redevelopment is a permanent upgrade. In 90% of cases in Mumbai, redevelopment is the financially smarter choice if the FSI allows it.