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REPORT

ON

TRANSFERABLE DEVELOPMENT RIGHTS

APRIL 2007

TABLE OF CONTENTS
1.0 2.0 2.1 2.2 2.3 3.0 3.1 3.2 4.0 4.1 4.2 4.3 4.4 5.0 5.1 5.2 6.0 7.0 INTRODUCTION..................................................................................................................................1 MEANING..............................................................................................................................................1 SENDING AREAS...................................................................................................................................1 RECEIVING AREAS ...............................................................................................................................1 COMPONENTS .......................................................................................................................................2 GLOBAL EXPERIENCE......................................................................................................................3 MONTGOMERY COUNTY, MARYLAND,.................................................................................................3 THURSTON COUNTY, WASHINGTON .....................................................................................................3 TDR IN MUMBAI .................................................................................................................................5 INTRODUCTION.....................................................................................................................................5 RESERVATION TDR .............................................................................................................................5 SLUM TDR...........................................................................................................................................5 HISTORIC TDR.....................................................................................................................................6 TDR ZONES..........................................................................................................................................7 TDR USING GUIDELINES......................................................................................................................7 TDR NON RECEIVING ZONES ...............................................................................................................7 TAX IMPLICATIONS OF TDRS ........................................................................................................9 MAJOR HOLDERS OF TDR IN MUMBAI:- ..................................................................................10

Transferable Development Rights April 2007

1.0 INTRODUCTION
Transferable Development Right (TDR) certificates, in simple language are certificates issued by the local municipality It is in the interest of all communities to preserve their historical landmarks, environmentally sensitive areas and open spaces. These not only beautify the city but also provide the much needed breathing space within the concrete jungle. This is true of any metropolitan like New Delhi, Hong Kong, Singapore etc and is especially true of island cities of Tokyo, Mumbai, etc where paucity of land acts as a limiting factor towards the growth and development of the community.

2.0 MEANING
The concept of TDRs provides for providing financial compensation to property owners while imposing restrictions to control the growth and development. This approach involves severing the right to develop an area that is to be preserved and transferring those rights to another site where higher than normal density would be tolerated and desirable. The development right is independent of land ownership as the development right becomes a separate article of private property and can be shifted from one area to another and can have economic value Landowners in the sending zone are allocated a number of development credits which can be sold to developers and speculators; and in return for selling their development credits, the landowners in the sending zone agree to place a permanent conservation easement on his or her land. The purchaser, on the other hand, can apply them to develop at a higher density than otherwise allowed on property within the receiving zone. TDR can be an efficient tool in converting the proposed planned development of a city into a reality. The value of a TDR is the difference in the value of land from the receiving zone minus the value of land from the sending zone. E.g. For example, Lets say that the value of the land for agriculture is $2,000 per acre and the developer would pay $6,000 to buy the property for development, the value of the easement or development right would be $4,000. Thus, TDR makes a free exchange (buying and selling) of development rights possible without having to buy or sell physical land parcel. Transferable Development Rights (TDR) programs, thus, in simple language, are transferable /saleable developmental rights for a particular property. It refers to a method for protecting land by transferring the "rights to develop" from one area and giving them to another. The area earmarked within the city limits (or state limits) which is to be protected is known as the sending zone and the area earmarked for development is known as the receiving zone.

2.1 SENDING AREAS


Sending areas can be agricultural land, open space, historical monuments, or any other property. In a TDR program, sending area properties are usually rezoned to a form of dual zoning that provides an alternative to the property owners either to accept and participate in the TDR or not to participate in and instead develop their property as allowed by their local development authority.

2.2 RECEIVING AREAS


Receiving areas are places that have been designated as areas of development. Often these areas are selected because they are close to existing development, jobs, shopping, schools, transportation, infrastructure, and other urban services

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Transferable Development Rights April 2007

TDR ordinances provide a solution with multiple benefits. The developers achieve greater profits from the higher level of development. The sending site owners are able to liquidate the development potential of their properties while still using these properties for nondevelopment and, in some cases, incomeproducing activities. And finally, the community itself is able to implement its preservation goals without relying exclusively on tax revenues and other traditional funding sources, which are often difficult to adopt.

2.3 COMPONENTS
There are four main elements of a TDR that must exist in all successful programs: A designated preservation zone (the sending area). A designated growth area (the receiving area). A pool of development rights those are legally severable from the land. A procedure by which development rights are transferred from one property to another.

Without these components, landowners will have trouble finding a buyer for their development rights. At the same time, the lack of a market for landowners who are mandated to sell their development rights to realize the economic value of their property could be grounds for legal action. Under a voluntary TDR program, the lack of a receiving area would result in development occurring in the sending area just as before and with little land being protected. As part of the comprehensive plan, a TDR program must provide incentive for the government to increase the building capacity within the receiving zones when TDRs are used. This extra capacity need to be approved only after the developer transfers the development rights they may own, or purchases those rights from landowners in the sending areas. It is recommended that receiving areas should provide for about 30 to 50 percent more building units that the actual number of transferable rights would allow. This creates a competitive market among landowners and developers It is important to note that receiving areas do not have to be contiguous to the sending area nor do they have to be in one large mass. However, wherever the receiving/sending areas are, the use of TDRs should be consistent with a community's comprehensive plan, future land-use map, zoning, and capital improvement program.

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Transferable Development Rights April 2007

3.0 GLOBAL EXPERIENCE


Development is a perpetual change that is inevitable. In addition to this, limited supply of resources, especially land, makes it mandatory that the development be a planned one in order to extract the maximum benefits out of the scarce resources. Land is among the most important resource available, and thus TDR is one way of achieving this planned growth and development. However, TDR are as difficult to implement as they are easy to understand. Most of the developed countries have, at one point or the other, earmarked industrial, residential, and agricultural zones in order to achieve a planned development. Mentioned below, in brief, are two such schemes initiated in the United States of America from the years 1980 to 2000; one successful and the other not so successful.

3.1 MONTGOMERY COUNTY, MARYLAND,


Located towards North West of Washington D.C, Montgomery countys population soared from 164,000 in 1950 to 340,000 in 1960, making it the fastest growing county in the state of Maryland. It became a desirable place to stay in because of its proximity to the nations capital and the comparative low cost of living. The increase in population began taking its toll on the agricultural land of the county and it started losing its agricultural land at approximately 3,500 acres per year. Keeping this in mind, the county established its TDR program in 1980. By the end of 1997, the TDR program had protected 39,180 acres (out of a total sending area of 89,000 acres) under protective easement. In the first decade following the establishment of the TDR program, the county gained a total of 3,000 acres to development, a drop of approximately 92 percent. In addition to the, the county created a County Development Rights Fund in 1982 to ensure that landowners in the sending area could sell TDRs or use TDRs as collateral to secure loans. The county created the Development Rights Fund Board to buy TDRs and to guarantee loans made by the private lending institutions. In order to become eligible for loan, the landowners were required to try to sell their TDRs in the open market or to secure a loan using the TDRs as collateral. However, the fund was never used as the TDR were readily bought in the market and finally in 1990, the fund was eliminated. The market price of TDR rose to a peak of $ 11,000 IN 1996, but declined to between $6,500 and $ 7,500 in 2000.

3.2 THURSTON COUNTY, WASHINGTON


Thurston County is located at the center of Washington State of United States of America. Easy access to the ocean and mountains and the availability of affordable land within commuting distance to Seattle have created a strong market for homes in Thurston County, thereby making it the fastest growing counties in the nation. Rapid industrialization and urbanization has forced American Farmland Trust to declare Thurston
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Transferable Development Rights April 2007

County as the nations fifth most threatened agricultural area Keeping this in mind, the county initiated a farmland protection technique under the scheme Urban Growth Boundaries (UGB).Under this scheme, the zoning and the development allowed in a farmland was reduced from two dwelling units per acre to one dwelling unit per five acres. This zoning now stands at one dwelling unit per forty acres. According to a survey done in 1991, it was estimated that it would cost approx $11 million to protect the 13,000 acres of agricultural land. In order to protect the agricultural land in Nisqually Valley, the government initiated a Purchase of Developmental Rights (PDR) program. Under this scheme, landowners were given only one chance to apply for the program and by 1997, after spending approx $2.3 million to protect 940 acres of farmland, the program ceased t exist. To compliment the PDR program, a TDR program was initiated in 1995 which stretched beyond the limits of Nisqually Valley. Although the program was created in 1995, it was not properly promoted until the year 2000. Till 2001, only 15 landowners had signed up for the scheme and only about half a dozen had enquired about it. The reason given was low awareness and understanding of the program among the landowners

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Transferable Development Rights April 2007

4.0 TDR IN MUMBAI


4.1 INTRODUCTION
TDR was introduced in Mumbai in 1991 with the aim of aiding Bombay Municipal Corporation (BMC) in acquiring private lands reserved for public use such as roads, parks, slum rehabilitation, etc. Under the TDR policy, the municipality was to acquire private land and compensate the owner by the grant of TDR. This allowed the private owner to construct an equivalent amount of floor space index (FSI) at any location north of the originating plot. The FSI of the TDR-receivable plots (suburbs) was increased from one to two. The owner of a TDR could sell his right to parties interested in exploiting further FSI on their plots. In the past six years, the Maharashtra Government has been able to acquire over a million square meters of unencroached land at no cost to itself by granting TDRs. There are currently the following three different types of TDR provisions in the city if Mumbai. Reservation TDR, Slum TDR and Heritage TDR

4.2 RESERVATION TDR


"Reservation" is the term used to describe certain land dedications or public improvements called for in the Mumbai Development Plan. When landowners exercise these reservations, TDRs are created, which can then be transferred and used suitable receiving areas. There are two types of sending areas in Mumbai. One, is the City, meaning the island city of Mumbai. This is only a sending area; meaning TDRs can only be created in south Mumbai and cannot be received. As per the regulations of the Mumbai Mahanagar Palika, any TDR arising in Mumbai MUST be transferred to the north of the sending area. i.e. the suburbs. On the other hand, the suburbs serve as both, the sending and receiving areas subject to the guideline mentioned earlier. TDRs created in the suburbs can either be transferred to any receiving area in suburbs or any other site further to the north of the sending area. Since 1993, the Reservation TDR program has generated anywhere from 50,000 square meters to 300,000 square meters per year of public improvements

4.2.1

EXAMPLE

The concept of Floor Area Ration used in U.S. is called Plot Ratio in India. Plot ratio in the Mumbai City is 1.33:1, i.e. 133 square meters of floor area can be built on a 100 square meter of plot area. When landowners surrender land in the sending area for roads, parks, etc, they receive TDRs at the rate of 1.33 square meters of floor area for each square meter of land offered. In the suburbs, as the plot ratio is 1:1, the landowners receive TDRs representing one square meter of floor area for each square foot of land dedicated for a qualifying improvement.

4.3 SLUM TDR


This program was initiated in 1995. Under this scheme, 0.25 square feet of TDRs are awarded for every square feet of slum. It implies that for every 1,00 square meters of construction eligible under
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the Slum TDR Program, a developer is able to build an extra 150 square meters of floor area at a receiving area site. Thus, total area is that can be constructed becomes 250 sq. mtrs. In 2000, 2001 and 2002, it produced roughly 250,000 square meters of bonus floor area per year on receiving sites. This jumped to 600,000 square meters transferred in 2003.

4.4 HISTORIC TDR


In this program the floor area that can be transferred from a historic site is the maximum floor area allowed under the plot ratio minus the actual size of the landmark structure. As heritage structures cannot be altered from the outside (depending upon the heritage grade the structure falls under), the remaining FSI of the structure can be converted to TDR and used in other receiving zone earmarked by the municipality.

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Transferable Development Rights April 2007

5.0 TDR ZONES


Under the Appendix VII-Mumbai TDR guidelines in the DCR, the DRCs (Development Rights Certificates) cannot be used in the island city. i.e. the Island City is a sending zone but NOT a receiving zone.

5.1 TDR USING GUIDELINES


Keeping in mind the limited availability of land in the Island City, the DCR has designated the Island City as a sending zone, making the suburbs the receiving zone for all the TDRs originating in South Mumbai. However, to prevent the indiscriminate usage of the Development Rights, DRCs can be used:a) On ANY plot in the same ward as in which the DRCs have originated. b) On any plot lying to the NORTH of the plot in which they have originated.

5.2 TDR NON RECEIVING ZONES


As per the guidelines laid down by the DCR, a TDR is not valid on plots lying in the areas listed below:a) b) c) d) e) f) g) Between the tracks of the Western Railway and S.V Road Between the tracks of the Western Railway and the Western Express Highway Between the tracks of Central Railway and Lal Bahadur Shastri Road On plots falling within 50 m on roads on which no new shops are permitted Coastal Areas and No Development Zones Areas where permissible FSI is less than 1. On plots situated in M ward.

The receiving and non receiving zone is high lighted in the map below:-

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Non Receiving Zone )

Non Receiving Zone )

Island City (Sending Zone)

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6.0 TAX IMPLICATIONS OF TDRS


Grant of TDR results in the acquisition of a capital asset and exploitation of the same gives rise to either profits from business ventures or as capital gains, depending on the nature of business of the user. TDR is associated with immovable property, and title can be conveyed only by means of a registered deed. Transactions allowing the possession of immovable property to be taken in part performance of a contract of the nature referred to in Sec. 53-A of the Transfer of Property (ToP) Act, 1882, came to be included within the definition of the term `transfer' by virtue of the insertion of sub-clause (v) in Sec. 2(47) of the Income-Tax (I-T) Act, 1961 by the Finance Act, 1987 with effect from April 1, 1998. Such transfers may fall in the category of trade, especially in the case of sale of plots over a period of years. In such cases, courts have often taken the view that tax liability can be fastened only when the transaction comes to an end and the resultant profit/loss ascertained. This is uncommon these days. In general, transfer of immovable property and rights associated therewith can give rise to liability to capital-gains tax only

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Transferable Development Rights April 2007

7.0 MAJOR HOLDERS OF TDR IN MUMBAI:The price of TDR in Mumbai has risen by more than 35% (from Rs. 1800 to 2500/- being quoted currently) since the Mumbai High Court Decision on TDR. Projects falling under SRA schemes are among the biggest generators of TDR in Mumbai. As a result, developers / companies like Akruti etc are in possession of large quantities of TDR. Some of the other major players are Vimal Shah and VideoconAtithi (20 lakh sq.ft) and Sumer Corporation (40 lakh sqft generated from slum rehabilitation scheme in Chandivali). The list of ongoing Akruti projects is depicted in the map below:-

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