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TDR – Contents and Discontents

December 22nd, 2010

The front-page news of the Times of India dated 11th December 2010 stated: “TDR is useless” according to law and urban development minister Mr. S. Suresh Kumar. Since the past few weeks, the issue of TDR (Transferable Development Rights) has been in the news as elected representatives and citizen groups are increasingly questioning the applicability of TDR for Bangalore. Protests have also been lodged against the coercive and surreptitious tactics used by the BBMP to ‘inform’ citizens about acquisition of their properties for road widening and award of TDR. “We wake up one morning and find these red markings on the walls of our premises saying 1.3 mtrs, 1.7 mtrs, 2 mtrs, etc. We do not know what is happening. Only later, through our friends and neighbours, it becomes clear to us that these red markings are indicative of the proposed width for road widening and that our properties have been marked for acquisition,” explained one of the residents protesting against the proposed road widening at Banaswadi on 28th November 2010. Earlier, in a similar manner, traders and residents in areas such as Rajajinagar and CMH Road found one morning that their properties would be acquired for the metro rail project. “It is like we are being governed by a Chinese regime of some sorts where the government notifies you one fine morning that it is building a mega infrastructure project and our properties will be acquired irrespective of our opinions and protestations,” explained Arijit (name changed to protect identity), a tenant trader at MKK Road. In response to people’s protests that they were being forced to accept TDR, Dr. A. Ravindra, advisor to Chief Minister for Urban Affairs, recently announced that TDR is optional and that BBMP cannot force people to accept TDR.

Why has TDR in Bangalore not gained the kind of currency and purchase that it has in cities such as Mumbai and Hyderabad? Are the problems solely related to the policy and its implementation? This article reviews people’s discontents with TDR and the recommendations that have been put forth by a Committee which was set up to analyze the problems with the TDR policy in Bangalore.

TDR – contents and discontents: The concept of TDR has been borrowed from American cities where TDR was introduced to save farmlands and heritage buildings from the massive transformations and developmental activity that was taking place in the wake of urbanization of big cities. The farmlands and heritage buildings would have been demolished or assimilated into the frenetic pace of building activity had governments of that time not offered the incentive of development rights to owners of such properties. The concept of TDR thus de-links development rights from the physical property and allows recipients to either use TDR on other land parcels that they own or trade these development rights with other individuals or builders who may require it to build extra units. TDR allows for what is known as vertical growth because you can use the development rights despite existing floor space restrictions and build extra units. However, you cannot violate the building codes and the existing zonal restrictions when you apply TDR i.e., you cannot build in excess of the floor space restrictions that have been laid down for each zone in the city. Despite this, a great deal of confusion continues to prevail among citizens whether TDR allows you to legalize existing illegal constructions or building code violations. Such ambiguities in the TDR policy and its application are causing uncertainties among citizens.

A second uncertainty which citizens are confronted with is about how to sell and thereby monetize the development rights awarded to them. Mr. Katta Subramaniam Swamy has proposed that TDR exchange centres be established in each area where citizen can sell the development rights to interested parties so that there is both transparency and guidance in the sales process. Three issues arise in connection with the sales of the development rights:

  1. First, it is unclear whether citizens have to pay a tax and undergo some kind of registration process for the TDR they have been awarded. This issue was peripherally raised by Mr. Padmanabha Reddy, one of the leaders of the opposition in the BBMP council, in the meeting organized by residents of Banaswadi area on 28th November 2010 to protest against road widening in their area. Logically, TDR can be equated with capital gains that accrue to individuals by virtue of owing assets. Hence, it is likely that recipients of TDR will have to declare this compensation in their tax returns and also go through a registration process to be able to sell their development rights certificate (DRCs). The details of the process are still unclear.
  2. Second, there is lack of clarity about the monetary/price value of the TDRs. As part of the compensation package under road widening, people are being awarded about 1.5 times the amount of FSI (Floor Space Index also known as Floor Area Ratio (FAR)) as compensation to the area they surrender. Thus, hypothetically, if you surrender about 100 square feet of your property, you will be eligible to build about 150 square feet under your TDR compensation package. Currently, residents and property owners are equating the value of TDR with the values of real estate in the areas where the TDR has been generated and where it will likely be used. Thus, if the value of properties on Bannerghatta Road is between Rs. 3,000 to Rs. 5,000 per square feet, the price of the TDR generated from this area is assumed to be the same. The sale prices of TDR may, however, not fetch similar amounts/values because TDR generated in Bannerghatta Road and sold to an owner or builder in K R Market is likely to fetch prices depending on the building restrictions in K R Market (where lesser restrictions allows for greater use of TDR and more intense building activity) and the overall demand for and supply of development rights in Bangalore, among other factors. Currently, people can sell TDRs in any zone they want to, unlike in cities in Mumbai where TDR generated in one area can only be used in areas that lie to the north of the originating plot. What we can infer from this issue is that the values of TDR will largely be contingent on the demand for TDR and the pace of building and real estate activity in the city.
  3. Following from the above, the third and most crucial issue arises: is there really a demand for development rights in Bangalore? The answer to this question tilts increasingly towards the negative because primarily, FSI in Bangalore is generally high unlike cities in Mumbai where the demand for TDR is greater because of the low FSI restrictions of 1 and 1.5. Secondly, development rights in Bangalore are awarded to individuals who are mostly owners of 30×40 sites and the volume of TDR awarded to each individual is fairly low. Therefore, a builder wanting to purchase TDR has to bargain with about hundreds of individuals who have been given small amounts of TDR in order to generate a voluminous amount of development rights that s/he can use in his/her building project. This process of bargaining is highly uncertain because people can either buy in or pull out of the process at any time depending on how the property markets are behaving and the values that real estate are fetching at a given point in time. From here, we can deduce also that TDR pushes up the costs of land acquisition for a builder and these high costs are transferred to future buyers.

To TDR or Not To TDR: In the light of the above uncertainties and criticisms, a Core Committee was established to study the problems with the current TDR policy and to come up with recommendations. The Committee clearly recognizes that a great deal of uncertainty about TDR prevails because citizens do not perceive a market for these development rights. It has therefore been suggested that existing zonal restrictions be reviewed thoroughly and that FAR be reduced in order to increase the demand for development rights. This implies that for a new policy to be made to work, new regulations and restrictions will have to be implemented. Consequently, this will only create new illegalities because tall buildings, which were built earlier at a time when the floor height restrictions were lower, will now come under the scanner of the new planners and regulators.

Secondly, the TDR committee has recommended that the BBMP use the instrument of bridge finance and buy back the TDR that it issues. This recommendation raises a few interesting paradoxes. Firstly, TDR is issued because municipalities and local governments are strapped for cash, and because they cannot give monetary compensations, they award development rights. If the BBMP is already reeling under financial deficits, how can it be expected to buy back the very TDR that it issues? To resolve this deficit issue, the bridge finance mechanism has been recommended. However, bridge financing, where the municipality borrows from capital markets or from state and central government agencies, comes with its own share of conditionalities and regulations which municipalities must adhere to. In some cases, local governments have to collateralize their assets in order to access bridge finances in the first place. Thus, the bridge finance recommendation is analogous to forcing the river to flow through new blocks and channels, opines urban theorist Dr. Solomon Benjamin. Moreover, the recommendation that the BBMP buys back the very TDR it issues and create TDR banks explicitly implies that the municipality will actually be tailoring and shaping Bangalore’s property markets to emerge in a certain way, thereby enhancing the possibilities of rises in land values and prices in the near future. This is a clear indication that governments are acting in particular ways, either on their own or under pressure from certain quarters of the state, to create property markets and raise real estate values.

From the above, a third and crucial issue arises which the TDR committee has failed to address i.e., there is no mention of what becomes of tenants who are living on properties that are acquired for road widening. In Mumbai, TDR is a coercive instrument where not only are owners shortchanged but, simultaneously, there is no consideration for tenants who have been living or carrying out trades on the acquired properties and who may not be able to afford to purchase their own properties. Instruments such as TDR suggest that governments and policy-makers are imagining property markets as made up only of owners; there is no space for tenants in their imaginations and policies. Similarly, if the BBMP creates a TDR bank and consequently pushes the prices of land values in Bangalore, it is tenants who will perhaps be hurt much more than owners.

Finally, it is heartening to note that the TDR committee recognizes and endorses citizens’ views that there must be alternatives to road widening. The Committee has proposed a list of alternatives to road widening such as putting grade separators, improving public transportation, among others, to resolve the compounding problem of vehicular traffic and congestion across the city.

We are still left with the question therefore, whether this city needs TDR or not. In the wake of increasing protests not only from citizens, but also from elected representatives, the verdict appears seems almost clear – no TDR. It remains to be seen how policy makers will respond to this negative demand …

An abridged version of this research piece is published on www.citizenmatters.in

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