 "Additional facilities will push up society charges")
When Ajanta Co-operative Housing Society in Govandi, a suburb in Mumbai, was redeveloped in 2009, the biggest grouse the residents had was the higher maintenance charges they had to shell out every month. Their monthly costs suddenly jumped from about Rs 700 to Rs 5,000.
Because of this, some of the residents - mostly senior citizens - were opposed to the redevelopment. They did get bigger flats, with additional facilities such as lift, security guards and closed-circuit televisions, among others. However, given the high monthly outgo towards maintenance, many of them now wonder if it made sense. In redevelopment, the builder gives a corpus, apart from the rent, to the original flat owners; however, this amount will not last a lifetime.
This is the dilemma faced by many housing societies in Mumbai, says Chandrashekhar Prabhu, housing activist and former president of Maharashtra Housing and Area Development Authority. "In Mumbai, buildings coming for redevelopment are at least 30 years old. So, most of the residents are retired; when they have to pay Rs 10,000 a month, against the earlier Rs 1,000, it becomes very expensive for them."
Society charges consist of two main components. One is the maintenance charge, which can vary depending on the facilities offered by the society. The other is the future requirements, says Ashutosh Limaye, head (research & real estate intelligence service) at Jones Lang LaSalle.
The maintenance charge includes money spent on electricity, security guards, water, cleanliness, routine maintenance of the building, etc. There is scope for the society to save under these heads. For instance, if the building has closed-circuit television and deployed security guards round the clock, it will push up costs. However, it is also advisable not to cut on these aspects because it is a question of safety.
In the case of electricity bills, the society can reduce the number of lights or switch to compact fluorescent ones to save money. If the lobby is air-conditioned, it need not be switched on all the time because people don't spend time there.
If there is more than one lift, you can use a software which will ensure that when someone calls for a lift, the one closest to that floor comes.
If the building has mechanised or stack parking, that can push up costs but might be hard to avoid. Older buildings were usually ground plus three or four storied, where a small motor was sufficient to pump water to the overhead storage tank. However, if after redevelopment, the height of the building has increased to seven-plus floors, a more powerful motor is required to pump water to the storage tank on the terrace. This will increase electricity consumption.
Additional facilities such as garden, club house, swimming pool or gymnasium will add to the monthly expenses.
Future expenses include sinking fund, building repair fund, money for setting up a borewell and so on. Even if these overheads work out to be expensive, it will be eventually utilised for the building's benefit.
Property tax is another big component of your monthly outgo, which increases after redevelopment. When a building is redeveloped or reconstructed, the tax liability will increase because it will be reassessed, treating it as a new building. It varies from city to city. For instance, in Mumbai, it was earlier calculated on rateable value, while now it is calculated on market value.
In rateable value, the property tax is calculated at 11 times the value of the rent in that particular area. In capital value, the current market value of the property is determined based on stamp duty ready-reckoner rates. Property tax is calculated as a certain percentage of the market value.
For older residents, it is a double burden. "Apart from the increase in the maintenance charges, they will have to pay more, as the area of the flat increases,'' says Limaye of Jones Lang LaSalle.
For instance, if the maintenance was Rs 2 a sq ft for an 800-sq ft flat, it might go up after redevelopment to Rs 7 a sq ft for a 1,200 sq ft flat. This means the monthly outgo will increase from Rs 1,600 a month to Rs 8,400 a month.
Limaye says, most societies do their homework before going in for redevelopment ensuring they create a sizeable corpus. Usually, it does not last more than 10 years.
"It really depends on the members. For instance, if the members are willing to pay more, they can ask for flats with bigger areas, instead of a bigger corpus. On the other hand, if the members can't afford to pay higher maintenance, they can ask the builder for a larger corpus,'' says Limaye.
In many buildings, the residents might not want many techno-savvy features. But the builder would be keen on these additional features, as it becomes easier to sell the flats to new residents at a higher premium. This is a dilemma faced by many housing societies.
One way out is for residents to redevelop the building on their own, without involving a builder. Many co-operative housing societies that came up before the 1960s were built this way, and there is no reason why they can't be redeveloped without builders.
"Eight per cent of Mumbai is self-developed. There is no reason why people can't do it now. Instead of giving redevelopment rights to builders, residents should use good contractors and sell the surplus area through consultants or brokers. This will ensure they are able to make money from the building," says Prabhu.
Because of this, some of the residents - mostly senior citizens - were opposed to the redevelopment. They did get bigger flats, with additional facilities such as lift, security guards and closed-circuit televisions, among others. However, given the high monthly outgo towards maintenance, many of them now wonder if it made sense. In redevelopment, the builder gives a corpus, apart from the rent, to the original flat owners; however, this amount will not last a lifetime.
| WHERE DOES ALL THE MONEY GO? |
Common items of a society bill
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This is the dilemma faced by many housing societies in Mumbai, says Chandrashekhar Prabhu, housing activist and former president of Maharashtra Housing and Area Development Authority. "In Mumbai, buildings coming for redevelopment are at least 30 years old. So, most of the residents are retired; when they have to pay Rs 10,000 a month, against the earlier Rs 1,000, it becomes very expensive for them."
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Society charges consist of two main components. One is the maintenance charge, which can vary depending on the facilities offered by the society. The other is the future requirements, says Ashutosh Limaye, head (research & real estate intelligence service) at Jones Lang LaSalle.
The maintenance charge includes money spent on electricity, security guards, water, cleanliness, routine maintenance of the building, etc. There is scope for the society to save under these heads. For instance, if the building has closed-circuit television and deployed security guards round the clock, it will push up costs. However, it is also advisable not to cut on these aspects because it is a question of safety.
In the case of electricity bills, the society can reduce the number of lights or switch to compact fluorescent ones to save money. If the lobby is air-conditioned, it need not be switched on all the time because people don't spend time there.
If there is more than one lift, you can use a software which will ensure that when someone calls for a lift, the one closest to that floor comes.
If the building has mechanised or stack parking, that can push up costs but might be hard to avoid. Older buildings were usually ground plus three or four storied, where a small motor was sufficient to pump water to the overhead storage tank. However, if after redevelopment, the height of the building has increased to seven-plus floors, a more powerful motor is required to pump water to the storage tank on the terrace. This will increase electricity consumption.
Additional facilities such as garden, club house, swimming pool or gymnasium will add to the monthly expenses.
Future expenses include sinking fund, building repair fund, money for setting up a borewell and so on. Even if these overheads work out to be expensive, it will be eventually utilised for the building's benefit.
Property tax is another big component of your monthly outgo, which increases after redevelopment. When a building is redeveloped or reconstructed, the tax liability will increase because it will be reassessed, treating it as a new building. It varies from city to city. For instance, in Mumbai, it was earlier calculated on rateable value, while now it is calculated on market value.
In rateable value, the property tax is calculated at 11 times the value of the rent in that particular area. In capital value, the current market value of the property is determined based on stamp duty ready-reckoner rates. Property tax is calculated as a certain percentage of the market value.
For older residents, it is a double burden. "Apart from the increase in the maintenance charges, they will have to pay more, as the area of the flat increases,'' says Limaye of Jones Lang LaSalle.
For instance, if the maintenance was Rs 2 a sq ft for an 800-sq ft flat, it might go up after redevelopment to Rs 7 a sq ft for a 1,200 sq ft flat. This means the monthly outgo will increase from Rs 1,600 a month to Rs 8,400 a month.
Limaye says, most societies do their homework before going in for redevelopment ensuring they create a sizeable corpus. Usually, it does not last more than 10 years.
"It really depends on the members. For instance, if the members are willing to pay more, they can ask for flats with bigger areas, instead of a bigger corpus. On the other hand, if the members can't afford to pay higher maintenance, they can ask the builder for a larger corpus,'' says Limaye.
In many buildings, the residents might not want many techno-savvy features. But the builder would be keen on these additional features, as it becomes easier to sell the flats to new residents at a higher premium. This is a dilemma faced by many housing societies.
One way out is for residents to redevelop the building on their own, without involving a builder. Many co-operative housing societies that came up before the 1960s were built this way, and there is no reason why they can't be redeveloped without builders.
"Eight per cent of Mumbai is self-developed. There is no reason why people can't do it now. Instead of giving redevelopment rights to builders, residents should use good contractors and sell the surplus area through consultants or brokers. This will ensure they are able to make money from the building," says Prabhu.