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What are Transferable Development Rights (TDR) in Real Estate?
What are the benefits and implications of TDR for builders and landowners? Which are the transactions involved in acquiring or sale of TDR?
Table of Contents
What is TDR in real estate?
- Transferable Development Rights (TDR) is a mechanism that assists the acquisition of private land by the government for public use in return for the development rights, generally in the form of a certificate, to the owner whose land was acquired.
- These development rights can be utilized to obtain additional FSI as stated in the certificate, or they can be sold in the market in exchange for monetary remuneration.
- An alternative approach to understanding TDR can be stated as – the TDR mechanism separates the land parcel and its development potential, making them separate entities. The development potential can then be applied on a smaller part of the same land or on another land parcel altogether.
- There are different types of TDR, such as slum TDR, heritage TDR, redevelopment of public housing TDR, road line TDR, etc. and their applicability is defined by the government. However, in the case of Bangalore, TDR has been used mostly for the construction and widening of roads.
Why is it important to understand TDR?
- TDR is being used increasingly by the government as a means to acquire necessary lands and provide compensation to landowners. It is known to have a separate real estate market, whose understanding is very important for the landowners who get these rights and want to exercise them or the developers who are willing to buy the rights.
- Dealing in the TDR market without complete knowledge of the governing regulations may result in discrepancies as well as negative legal and financial repercussions.
- Gaining additional FSI through TDR proves important as it allows developers to construct more within a smaller plot area which is common in urban areas.
Which are the transactions involved in acquiring and sale of TDR?
There are mainly two transactions related to TDR in real estate –
- Issuing of TDR by the Government to Landowner TDR is issued to the landowner in exchange for the acquisition of his land by the government.
- Purchase and sale of TDR in the market between the Landowner and Developer The landowner who has TDR, given to him by the government during land acquisition, may sell these rights to a developer who is willing to purchase them for monetary compensation.
Transactions related to TDR generally happen through the TDR certificate or Development Rights Certificate (DRC). This certificate is issued by the government to the landowner in exchange for the acquired land. It contains all the necessary details such as permitted built-up area, area of land surrendered to the government, circle cost of the area, etc.
What are the benefits and implications of TDR for builders and landowners?
Benefits of TDR
Many aspects of urban development require the acquisition of private land by the government. Initially, to compensate the landowners for their land, the government needed to pay them monetary remuneration. However, since the concept of TDR has come forth, it provides a win-win situation for the government as well as the landowners.
- Benefits to the Government
The government, instead of paying landowners in monetary terms, offers TDR to them, without having to shell out money. This helps in the speedy acquisition of land by the government for urban development.
- Benefits to the Landowner
TDR helps the landowners in getting timely and market-based returns from their acquired land. In some cases, TDR may also be a voluntary option that protects the interests of the landowners. It also provides the landowner with the flexibility to use the TDR by himself for the land in-situ, remaining after the acquisition, or some other land of his choice. He also has the option to sell the TDR to developers or landowners who may be looking to purchase additional FSI for their projects.
- Benefits to the Developer
The developers would be able to legally acquire additional FSI at lower prices. Large-scale developers can greatly benefit from this as they can have additional built-up areas and gain profits on the same.
The FSI added through the purchase of TDR is over and above what is usually available for the receiving land plot, as per the prevailing development regulations.
Overall, it also increases the pace of development which helps in the appreciation of real estate prices.
Limitations of TDR
- Though it may seem like a good opportunity for all those involved, it is important to practice caution as the process and documentation can be complicated. There can also be a lack of transparency in the process because of the multiple stakeholders involved in the process.
- The TDR process is known to be time-consuming, involving institutional processes which the stakeholders need to be aware of. It is also important to ensure that all the legalities related to the process of TDR have been studied to avoid any problems.
- All documents should be retained by the party utilizing the TDR, to avoid any discrepancy at a later stage.
- Further, it is important to note that the different types of TDR might have different applicability and regulations. Only certain types of TDR can be received on certain lands.
Where and how is TDR applicable in Karnataka?
Applicability of TDR in Karnataka is defined by the Karnataka Municipalities Model Building Bye-Laws, 2017 Section 13.11 as stated below –
13.11 Grant of Transferable Development Rights (TDR) in cases of loss of development rights
If any application for development is refused under this regulation, or conditions are imposed while permitting such developments, which deprive the owner of any unconsumed Floor Area Ration (FAR), the said owner/lessee shall be compensated by the grant of a Development Rights Certificate (DRC). The extent of DRCs to be granted and used will be determined by the Rules specially framed for the Transfer of Development Rights.
Within Bangalore, TDR was conceptualized for land acquisition, especially for road widening and road formation. The concerned authority for the implementation of TDR in Bangalore was Bruhat Bangalore Mahanagar Palike (BBMP) under the KTCP Act, 1961 and Master Plan, 2015.
However, with the TDR policies being comparatively dated, the government has been assessing alternative regulations keeping in mind previous experiences. Additionally, the authority to be dealing with TDR is also being given thought and is likely to be shifted to the Bangalore Development Authority (BDA), going forward. As the formulation of new policies and regulations is still underway, currently no TDR certificates are being issued by the government or being traded in the market in Bangalore.
It is advisable to be aware of the ongoing situation and be weary of any fake TDR certificates being traded in the market, which can lead to legal implications.
Since the regulations are being revised and the new rules are yet to be issued, this article does not contain the exact processes related to the previously mentioned TDR transactions and processes. The same will be updated once the new regulations are established.
Understanding the concept of TDR is very important for all real estate stakeholders, be it landowners, developers, or buyers, as it helps in gaining clarity of the regulations in place that help the sale of development rights and in continuation, the construction of any project. With urbanization gaining at an unprecedented pace, the concept of TDR is inevitably going to be more relevant than ever and be used repeatedly as a fiscal tool by governments to promote development.
Earthfields enables locating the site on a satellite map, understanding its surroundings, viewing the layer of the development plan and identifying future proposals, etc. which proves to be indispensable to the landowners and developers.
The effort by Earthfields to introduce a feature wherein access to legal documentation uploaded by the landowners will be available to premium real estate developers is a step towards increasing transparency in the entire process.
Calculating the development potential of the site, permissions required and applicability of TDR on a particular site helps both the landowner and developer in making informed decisions on the purchase and sale of TDR.
Overall, Earthfields works towards simplifying the land transaction process for all the stakeholders involved by providing all the related information in a single place.
Since the new regulations related to TDR in Bangalore are yet to be established, this article does not contain the exact process of purchase and sale of TDR. Earthfields will be updating the new regulations and processes once they are released. Further, this article provides an overview of the general notion regarding TDR in real estate and its implications, benefits and processes may vary according to the context of the specific cities, and projects and might also change with changes in the regulations related to TDR. Hence, complete knowledge and discretion are advised before going ahead with any deal.