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TDR's in India and Required Policy Intervention

9 MIN READAugust 24, 2020

Consultant PPP
NITI Aayog
By 2030, India’s economic growth is expected to be accompanied by a shift in the underlying demographics. As per World Bank data, India’s population has increased at a CAGR of 1.2% during the period 2011-2017 and is expected to reach 1.52 billion by 2030. Thereby, going forward in India there will be an increasing trend of urbanization, a peaking of the population in the working age group, and a larger share of this population will be employed in the services sector. Also, over the last decade, the urban population in India has increased at an annual rate of 2.4%. It is estimated that around 42% of India’s population would be urbanized by 2030 from 31% in 2011. 
Urbanisation has direct correlation with the economic growth of any nation. Cities are home to agglomeration externalities, which, interacting with knowledge externalities, drive the economic growth during structural transformation of nations. Yet policy-makers in several developing countries in the past seemed to have had an anti-urban bias. This is primarily due to the lack of appreciation of externalities of cities and their role in facilitating economic growth and generating resources for economic development, including urban and rural development. In India, in addition to the above, paucity of necessary financial resources at the Urban Local Body (ULB) level to finance the infrastructure is another major impendent.  

For India’s economy to leap forward into the double-digit growth trajectory, high priority needs to be accorded to the urbanisation process with emphasis upon innovative as well as sustainable policy measures. The Ministry of Housing and Urban Affairs (MoHUA) had coined a ‘Value Capture Finance Policy Framework’ in 2017 in which the Transferable Development Rights’ (TDR) is one of the noted policy measures that can be adopted by the Centre/ States / ULBs in suitable schemes. 

To support the demographic shift and meet the infrastructural needs of present and foreseen urbanization in India, huge investments are required. The cost of the land forms a significant portion of the overall urban project cost, however the process and cost of land acquisition in urban areas is extremely cumbersome and expensive. Land acquisition is required for public purpose especially for road widening, parks and playgrounds, schools etc, and is a costly, time consuming process. To address these issues considering the constraints, ULBs can implement innovative instruments such as the TDR not just to raise revenues for ULBs/ planning authorities but also to support the ULBs in saving the costs required for developing urban infrastructure projects.

The basic concept of the transferable development rights method is FSI credit received on surrender of land or part thereof for public purpose projects. Such FSI credit can be used on a remaining plot or on another plot in a permitted zone. It can also be traded with real estate developers or any third person for monetizing its value. It works when the developers are able to use these FSI credits to construct additional floors in the receiving area than would otherwise be permitted, thereby recovering the cost of purchasing TDRs.

The policy instrument provides flexibility to the Authorities to compensate landowners through issuing Development Right Certificates that can be utilized as per present market value without incurring actual outflow of money. Presently, this method is being used in Mumbai, Hyderabad, Ahmedabad, and other major cities in India. The purposes of its adoption are varied e.g. heritage conservation, lake and water bodies conservation, slum improvement, development of public housing, road widening and improving other trunk infrastructure.
Globally, New York City pioneered using the TDR mechanism. The city follows a system wherein the transfer of unused development rights from one zoning lot to another is allowed in limited circumstances. This mechanism is mainly used for preservation of heritage buildings, open spaces or cultural resources and is a way to compensate the property owners for the loss in revenue on their properties. The system is market driven and participation in the TDR programs is voluntary. 

Furthermore, the City of São Paulo in Brazil has implemented an instrument called Certificados de Potencial Adicional de Construção, or CEPACs (translated as certificates of additional construction potential bonds) as a tool to create development rights for up-zoning. These rights could be used only in certain areas of the city designated for public investments. The rights were sold to developers to raise funds which were used for financing infrastructure construction. An important aspect of this instrument was that the total number of CEPACs were capped and determined by the municipality. 

Similarly, the Curitiba city in Brazil also has a used the TDR method for environmental protection, heritage preservation and social housing. A natural drainage system was created using TDR method for protecting the city from recurrent floods instead of making investments in installing concrete flood protection structures. TDR sending areas included riverbanks that were converted into parks to absorb overflow and lakes constructed to contain flood waters to prevent flooding downstream.

To deliberate on the said policy matter and understand it’s impact, GRI Club organised a feedback session with key industry stalwarts including Niranjan Hiranandani (Hiranandani Builders), Sanjay Dutt (Tata Reality), Raj Menda (RMZ Group) and Manish Agarwal (PWC). There was a consensus amongst the participants regarding the importance of TDR as a policy instrument for the ULBs and for sustained urbanisation. The key take-aways that emerged on TDR policy framework are postulated herewith. 
  1. Globally TDRs have been used as a policy instrument for both raising financial resources and curtailment of expenditure in-lieu of land acquisition or due to any restriction imposed on allowable FSI/ BUA. 
  2. In India, TDR policy has been introduced by amending the relevant Municipal Act/Town Planning Act/ building rules by some States. The TDR is, in general, functions as one of the elements to achieve an overarching urban development objective. 
  3. The TDR policy offers an economic opportunity by saving the ULBs from outflow of enormous funds required for acquisition of land for public purposes. However, it is not entirely cost-free. The cost of registering TDRs, developing TDR banks, mapping, provision of infrastructure in the receiving areas, capacity building of officials, awareness generation of landowners etc. should also be a part of the overall policy implementation.    
  4. The TDR method can be used as an incentive for various public purposes like: 
    1. Development of affordable houses under State Affordable Housing Policy 
    2. Development of Green spaces- Parks/ Open Spaces/Playgrounds /Water Bodies etc. as per the provision of Master Plan/ Sector Plan. 
    3. Development of roads including road widening and strengthening of other trunk infrastructure
    4. Development of Public Parking lots
    5. Development of City level Facilities/other public purposes as per Master Plan proposals
    6. Slum rehabilitation scheme
    7. Public housing redevelopment 
    8. Preservation of historical buildings/ landmarks/ heritage structures etc.
    9. Conservation of water bodies and lakes 
Last but not least, there exists apprehensions among land/house owners about the economic value of TDR. TDRs certificates have FSI credits, but their monetary value depends on the overall property market in the city and hence is uncertain. They may also not provide for timely compensation as the suitable buyers may not be available when money is required by the TDR certificate holders. Therefore, a robust mechanism should be adopted by the authority to enhance the commercial value of TDR certificates and prevent fraudulent transactions to make the instrument more market acceptable and bankable. 

"Land is predominantly a state subject and therefore its related benefits and jurisdiction over it. The transferability or monetizability is dependent on demand and supply dynamics of markets and strong policy influence of State Government. The Centre can role out a model policy of land owned by Central Government under Ministry of Railways, Defence, Textile, Airport Authority of India, Port Trust of India etc and make it transferable, tradeable and developable within the boundaries of such land and wherever the State Government agrees outside. The option can be given to State Governments also to buy. State can consider this as model policy and adopt. Railways & Airport Authority of India have already done this.

Alternatively, we should make “India FSI Regulation Free” and control development through environment, health, safety, transportation, traffic planning etc controlled City Master Plans. There would be no need for transfer because it is unlimited to the extent it is viable and subject to constraints on the height and above parameters. Last but not the lease, if Government doesn’t have money to buy land and they want to give TDR in lieu, they better either generate money or privatize who can pay”.

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